v2.4.0.6
Derivative Instruments
 12 Months Ended
Dec. 31, 2011
Derivative Instruments
10. Derivative Instruments

The Company uses derivatives in accordance with its overall risk management policies. The Company enters into interest rate swap agreements which exchange a receipt of floating interest for a payment of fixed interest to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company has not designated, for accounting purposes, its interest rate swaps as cash flow hedges of its U.S. Dollar denominated LIBOR borrowings.

Realized and unrealized losses (gains) relating to the Company’s interest rate swaps have been reported in realized and unrealized (loss) gain on the consolidated statements of (loss) income. During the year ended December 31, 2011, the Company recognized a net realized loss of $39.0 million and an unrealized gain of $11.2 million, relating to its interest rate swaps. During the year ended December 31, 2010, the Company recognized a net realized loss of $14.9 million and an unrealized loss of $13.8 million, relating to its interest rate swaps. During year ended December 31, 2009, the Company recognized a net realized loss of $10.9 million and an unrealized gain of $22.9 million, relating to its interest rate swaps.

The following summarizes the Company’s derivative positions as at December 31, 2011:

 

     

Interest Rate

Index

    Principal
Amount
$		      Fair Value /
Carrying
Amount of Asset
(Liability)
$		     Remaining Term
(years)		      Fixed Interest
Rate
(%) (1)		  

LIBOR-Based Debt:

              

U.S. Dollar-denominated interest rate swap (1)

    USD LIBOR 3M      200,000        (12,000 )      4.8        2.51    

U.S. Dollar-denominated interest rate swap (1)

    USD LIBOR 3M      100,000        (25,028 )      5.8        5.55    

U.S. Dollar-denominated interest rate swap (1)

    USD LIBOR 3M      70,000        (159 )      0.5        0.85    

U.S. Dollar-denominated interest rate swap (1)

    USD LIBOR 3M      45,000        (410 )      1.5        1.19    

 

(1) Excludes the margin the Company pays on its variable-rate debt, which as of December 31, 2011 was 0.6%

 

The Company is potentially exposed to credit loss in the event of non-performance by the counterparty to the interest rate swap agreements in the event that the fair value results in an asset being recorded. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time transactions are entered into.