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Financial Instruments
 12 Months Ended
Dec. 31, 2011
Financial Instruments Abstract  
Financial Instruments
8.
Financial Instruments
Derivative Instruments
The Partnership has entered into fourteen interest rate swap agreements in order to mitigate the exposure from interest rate fluctuations. The Partnership under its $370,000 credit facility has swapped the amount of $366,500 and under its $350,000 credit facility, the amount of $107,500.
 
All derivatives are carried at fair value on the consolidated balance sheet at each period end. Balances as of December 31, 2011 and 2010 are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
December 31, 2011
 
 
December 31, 2010
 
 
  
Interest Rate Swaps
 
 
Total
 
 
Interest Rate Swaps
 
 
Total
 
Short-term liabilities
  
$
(8,255
) 
 
$
(8,255
) 
 
 
—  
  
 
 
—  
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term liabilities
  
$
(4,422
) 
 
$
(4,422
) 
 
$
(32,505
)
 
$
(32,505
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
$
(12,677
) 
 
$
(12,677
) 
 
$
(32,505
) 
 
$
(32,505
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tabular disclosure of financial instruments is as follows:
 
 
 
 
 
 
 
 
 
 
Liability derivatives
  
 
 
Balance sheet location
  
As of December 31, 2011
Fair value
 
  
As of December 31, 2010
Fair value
 
Derivatives designated as hedging instruments - effective hedges
  
 
 
 
  
 
 
 
Financial instruments long-term liabilities.
  
$
4,422
  
  
$
32,505
  
Financial instruments short-term liabilities.
  
$
839
  
  
 
—  
  
 
  
 
 
 
  
 
 
 
 
 
 
Total derivatives not designated as hedging instruments - ineffective hedges
  
 
 
 
  
 
 
 
Financial instruments short-term liabilities.
  
$
7,416
  
  
 
—  
  
 
  
 
 
 
  
 
 
 
 
 
 
Total Derivatives
  
$
12,677
  
  
$
32,505
  
 
  
 
 
 
  
 
 
 
The table below shows the effective portion of the Partnership's derivatives recognized in Other Comprehensive Income (“OCI”), the realized losses from net interest rate settlements transferred from OCI into the Partnership's statements of income and the amounts recognized in income arising from the ineffective interest rate swap agreements, for the years ended December 31, 2011, 2010 and 2009, respectively:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives for cash flow
hedging relationships
 
Amount of Loss
Recognized in OCI
on Derivative
(Effective Portion)
 
 
Location of Gain/(loss)
Reclassified into Income
(Effective Portion)
 
Amount of Loss
Reclassified from OCI
into Income (Effective
Portion)
 
 
Amount of Gain
Remaining in OCI
on Derivative
(Effective Portion)
 
 
Location of Gain/(loss)
Recognized in income
(ineffective portion)
 
Amount of Gain/
(Loss) recognized
in income
 
 
 
2011
 
 
2010
 
 
2009
 
 
 
 
2011
 
 
2010
 
 
2009
 
 
2011
 
 
2010
 
 
2009
 
 
 
 
2011
 
 
2010
 
  
2009
 
Interest rate swaps
 
 
(4,234
) 
 
 
(17,159
) 
 
 
(8,467
) 
 
Interest expense and finance cost
 
 
(21,752
) 
 
 
(21,585
) 
 
 
(18,950
) 
 
 
17,518
  
 
 
4,426
  
 
 
10,483
  
 
Gain on interest rate swap agreement
 
 
2,310
  
 
 
—  
  
  
 
—  
  
The Partnership follows the accounting guidance for derivative instruments which requires disclosure that establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
  
The Partnership's interest rate swap agreements, entered into pursuant to its loan agreements, are based on LIBOR swap rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items. The fair values of the interest rate swap determined through Level 2 of the fair value hierarchy are derived principally from or corroborated by observable market data. Inputs include quoted prices for similar assets, liabilities (risk adjusted) and market-corroborated inputs, such as market comparable, interest rates, yield curves and other items that allow value to be determined. Fair value of the interest rate swaps is determined using a discounted cash flow method based on market-base LIBOR swap yield curves. The fair value of the Partnership's interest rate swaps is the estimated value of the swap agreements at the reporting date, taking into account current interest rates and the forward yield curve and the creditworthiness of the Partnership and its counterparties.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Quoted Prices
in Active
Markets for
Identical Assets
 
  
Significant
Other
Observable
Inputs
 
 
Significant
Unobservable
Inputs
 
Derivatives
  
Total
 
 
(Level 1)
 
  
(Level 2)
 
 
(Level 3)
 
December 31, 2010
  
$
(32,505
) 
 
 
—  
  
  
$
(32,505
) 
 
 
—  
  
December 31, 2011
  
$
(12,677
) 
 
 
—  
  
  
$
(12,677
) 
 
 
—  
  
As of December 31, 2011, the interest rate swaps as presented in the table below qualify as a cash flow hedge and the changes in their fair value are recognized in accumulated other comprehensive income/(loss).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank
  
Currency
 
  
Notional
Amount
 
  
Fixed
rate
 
 
Trade
date
 
  
Value
date
 
  
Maturity
date
 
  
Fair market
value as of
December 31, 2011
 
HSH Nordbank AG
  
 
USD
  
  
 
20,500
  
  
 
4.9250
% 
 
 
09.20.2007
  
  
 
09.24.2007
  
  
 
06.29.2012
  
  
 
(445
) 
HSH Nordbank AG
  
 
USD
  
  
 
46,000
  
  
 
3.5250
% 
 
 
03.25.2008
  
  
 
03.27.2008
  
  
 
03.27.2013
  
  
 
(1,636
) 
HSH Nordbank AG
  
 
USD
  
  
 
11,500
  
  
 
3.8950
% 
 
 
04.24.2008
  
  
 
04.30.2008
  
  
 
03.28.2013
  
  
 
(463
) 
HSH Nordbank AG
  
 
USD
  
  
 
20,000
  
  
 
4.5200
% 
 
 
06.13.2008
  
  
 
06.17.2008
  
  
 
06.28.2012
  
  
 
(394
) 
HSH Nordbank AG
  
 
USD
  
  
 
28,000
  
  
 
4.6100
% 
 
 
06.13.2008
  
  
 
06.17.2008
  
  
 
03.28.2013
  
  
 
(1,379
) 
HSH Nordbank AG
  
 
USD
  
  
 
22,000
  
  
 
4.0990
% 
 
 
08.14.2008
  
  
 
08.20.2008
  
  
 
03.28.2013
  
  
 
(944
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total derivative instruments fair value
  
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
(5,261
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Since July 1, 2011 eight interest rate swaps of the Partnership, as disclosed to the table below, do not qualify as a cash flow hedges any longer. As a result the amount of $11,920, which was part of the Partnership's accumulated other comprehensive loss (“OCL”) as of June 30, 2011, attributable to ineffective hedges and is being amortized over their respective remaining term up to their maturity dates (June 2012) and are being recognized in the Partnership's consolidated statements of income by using the effective interest rate method.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank
  
Currency
 
  
Notional
Amount
 
  
Fixed
rate
 
 
Trade
date
 
  
Value
date
 
  
Maturity
date
 
  
Fair market
value as of
December 31, 2011
 
HSH Nordbank AG
  
 
USD
  
  
 
30,000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
04.04.2007
  
  
 
06.29.2012
  
  
 
(682
) 
HSH Nordbank AG
  
 
USD
  
  
 
56,000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
05.08.2007
  
  
 
06.29.2012
  
  
 
(1,274
) 
HSH Nordbank AG
  
 
USD
  
  
 
56.000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
07.13.2007
  
  
 
06.29.2012
  
  
 
(1,274
) 
HSH Nordbank AG
  
 
USD
  
  
 
56,000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
09.20.2007
  
  
 
06.29.2012
  
  
 
(1,274
) 
HSH Nordbank AG
  
 
USD
  
  
 
56,000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
09.28.2007
  
  
 
06.29.2012
  
  
 
(1,274
) 
HSH Nordbank AG
  
 
USD
  
  
 
24,000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
01.29.2008
  
  
 
06.29.2012
  
  
 
(546
) 
HSH Nordbank AG
  
 
USD
  
  
 
24,000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
01.29.2008
  
  
 
06.29.2012
  
  
 
(546
) 
HSH Nordbank AG
  
 
USD
  
  
 
24,000
  
  
 
5.1325
% 
 
 
02.20.2007
  
  
 
08.20.2008
  
  
 
06.29.2012
  
  
 
(546
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total derivative instruments fair value
  
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
(7,416
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
For the year ended December 31, 2011 the Partnership recorded an expense of $5,956 from the above amortization. Additionally, for the year ended December 31, 2011, the Partnership recorded a gain of $8,266 as a result from the change in the fair value of these eight interest rate swaps. The net result of the accumulated OCL amortization and the change of the fair value of the eight swap agreements of $2,310 is presented under other non operating income (expense) net as a “Gain on interest rate swap agreement” in the Partnership's consolidated statements of income for the year ended December 31, 2011.