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Financial Instruments
 6 Months Ended
Jun. 30, 2012
Financial Instruments (Abstract)  
Financial Instruments
8.
Financial Instruments
The carrying value of trade receivables, accounts payable and current accrued liabilities approximates their fair value. The fair values of long-term variable rate bank loans approximate the recorded values, due to their variable interest and pricing. In addition the Partnership's lenders impose an additional cost if their borrowing rate exceeds effective interest rate (LIBOR) as stated in the Partnership's loan agreements. We believe the terms of our loans are similar to those that could be procured as of June 30, 2012. Interest rate swaps are recorded at fair value in the unaudited condensed consolidated balance sheets.
 
 
Derivative Instruments
The Partnership had entered into fourteen interest rate swap agreements in order to mitigate the exposure from interest rate fluctuations. Nine of the Partnership's interest rate swap agreements under its $370,000 credit facility expired as of June 29, 2012 and the tenth was closed out upon the sale of the M/T Attikos and M/T Aristofanis. During the six month period ended June 30, 2012, the Partnership closed out one interest rate swap agreements in full and one partially under its $350,000 credit facility. As of June 30, 2012, the Partnership has swapped the amount $59,084. All derivatives are carried at fair value on the unaudited condensed consolidated balance sheets at each period end. Balances as of June 30, 2012 and December 31, 2011 are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
June 30, 2012
 
 
December 31, 2011
 
 
  
Interest Rate Swaps
 
 
Total
 
 
Interest Rate Swaps
 
 
Total
 
Short-term liabilities
  
$
(1,389
) 
 
$
(1,389
) 
 
$
(8,255
) 
 
$
(8,255
) 
Long-term liabilities
  
$
—  
  
 
$
—  
  
 
$
(4,422
) 
 
$
(4,422
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
  
$
(1,389
) 
 
$
(1,389
) 
 
$
(12,677
) 
 
$
(12,677
) 
Tabular disclosure of financial instruments is as follows:
 
 
 
 
 
 
 
 
 
 
Liability derivatives
  
 
 
Balance sheet location
  
As of June 30,  2012
Fair value
 
  
As of December 31, 2011
Fair value
 
Derivatives designated as hedging instruments - effective hedges
  
 
 
 
  
 
 
 
Financial instruments long-term liabilities.
  
$
—  
  
  
$
4,422
  
Financial instruments short-term liabilities.
  
$
296
  
  
 
839
  
 
  
 
 
 
  
 
 
 
Total derivatives not designated as hedging instruments - ineffective hedges
  
 
 
 
  
 
 
 
Financial instruments short-term liabilities.
  
$
1,093
  
  
 
7,416
 
 
  
 
 
 
  
 
 
 
Total Derivatives
  
$
1,389
  
  
$
12,677
  
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
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 unaudited condensed consolidated statements of comprehensive income and the amounts remaining in OCI for the six months period ended June 30, 2012 and 2011 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
 
 
  
2012
 
 
2011
 
 
 
  
2012
 
 
2011
 
 
2012
 
  
2011
 
  
 
  
2012
 
  
2011
 
Interest rate
swaps
  
 
(1,857
) 
 
 
(2,163
) 
 
Interest
expense
and
finance
 
cost
  
 
(11,697
) 
 
 
(10,791
) 
 
 
9,840
  
  
 
8,628
  
  
Gain on
interest
rate swap
agreement
  
 
1,447
  
  
 
—  
  
 
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 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
  
Total
 
    
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
    
Significant
Other
Observable
Inputs
(Level 2)
 
    
Significant
Unobservable
Inputs
(Level 3)
 
December 31, 2011
  
$
(12,677
) 
    
 
—  
  
    
$
(12,677
) 
    
 
—  
  
 
  
 
 
 
    
 
 
 
    
 
 
 
    
 
 
 
June 30, 2012
  
$
(1,389
) 
    
 
—  
  
    
$
(1,389
) 
    
 
—  
  
 
  
 
 
 
    
 
 
 
    
 
 
 
    
 
 
 
Following the partial repayment of the Partnership's credit facilities in May 2012 (Note 7), the sale of the M/T Attikos and M/TAristofanis (Note 5) resulting the termination of the swap agreement equals to $20,500 and the termination of nine interest rate swap agreements in June 2012, the Partnership's interest rate swap agreements were reduced to three. As of June 30, 2012 the interest rate swap agreements 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 June 30, 2012
 
HSH Nordbank
    
USD
    
 
11,500
  
    
 
3.8950
% 
  
04.24.2008
    
04.30.2008
    
03.28.2013
    
 
296
  
Since, May 23, 2012 one interest rate swap of the Partnership does not qualify as cash flow hedge any longer and is presented to the table below. As a result the amount of $50, which was part of the Partnership's accumulated other comprehensive loss (“OCL”) as of May 23, 2011, is attributable to ineffective hedges and is being amortized over their respective remaining term up to its maturity date (March 28, 2013) and is being recognized in the Partnership's consolidated statements of comprehensive 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
June 30,
2012
 
HSH Nordbank
    
USD
    
 
1,584
  
    
 
4.099
% 
  
08.14.2008
    
08.20.2008
    
03.28.2013
    
 
43
  
HSH Nordbank
    
USD
    
 
46,000
  
    
 
3.5250
% 
  
03.25.2008
    
03.27.2008
    
03.27.2013
    
 
1,050
  
 
    
 
    
 
 
 
    
 
 
 
  
 
    
 
    
 
    
 
 
 
Total derivative
instruments fair
value
    
 
 
 
    
 
 
 
  
 
    
 
    
 
    
 
1,093
  
 
    
 
    
 
 
 
    
 
 
 
  
 
    
 
    
 
    
 
 
 
For the six month period ended June 30, 2012 the Partnership recorded an expense of $13 from the above amortization.
For the six month period ended June 30, 2012, the Partnership recorded a gain of $8,075 as a result from the change in the fair value of derivatives that did not qualify for cash flow hedge accounting. The net result of the accumulated OCL amortization and the change of the fair value of the nine swap agreements of $1,447 is presented under other non operating income (expense) net as a “Gain on interest rate swap agreement” in the Partnership's unaudited condensed consolidated statements of comprehensive income for the six month period ended June 30, 2012.