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Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities
The Partnership uses derivative instruments in accordance with its overall risk management policy.
Foreign Exchange Risk
The Partnership economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts.
As at December 31, 2019, the Partnership was committed to the following foreign currency forward contracts:
 
 
Contract Amount in Foreign Currency
 
Average Contract Rate (1)
 
Fair Value /
Carrying
Amount of
Asset (Liability)
$
 
Expected Maturity
2020
$
 Euro

5,820


0.86

(202
)

6,750

(1) Average contractual exchange rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
The Partnership entered into cross currency swaps concurrently with the issuance of its NOK-denominated senior unsecured bonds (see Note 10), and pursuant to these swaps, the Partnership receives the principal amount in NOK on maturity dates of the swaps in exchange for payments of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal of the Partnership’s NOK-denominated bonds due in 2020, 2021 and 2023, and to economically hedge the interest rate exposure. The following table reflects information relating to the cross currency swaps as at December 31, 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating Rate Receivable
 
 
 
 
 
 
Principal
Amount
NOK
 
Principal
Amount
$
 
     Reference
Rate
 
Margin
 
Fixed Rate
Payable
 
Fair Value /
Carrying
Amount of Asset
(Liability)
$
 
Weighted-
Average
Remaining
Term (years)
1,000,000

 
134,000

 
NIBOR
 
3.70
%
 
5.92
%
 
(20,665
)
 
0.4
1,200,000

 
146,500

 
NIBOR
 
6.00
%
 
7.72
%
 
(10,532
)
 
1.8
850,000

 
102,000

 
NIBOR
 
4.60
%
 
7.89
%
 
(10,907
)
 
3.7
 
 
 
 
 
 
 
 
 
 
(42,104
)
 
 


Interest Rate Risk

The Partnership enters into interest rate swaps which exchange a receipt of floating interest for a payment of fixed interest to reduce the Partnership’s exposure to interest rate variability on certain of its outstanding floating-rate debt. As at December 31, 2019, the Partnership was committed to the following interest rate swap agreements:
 
 
Interest
Rate
Index
 
Principal
Amount
$
 
Fair Value /
Carrying
Amount of
Assets
(Liability)
$
 
Weighted-
Average
Remaining
Term
(years)
 
Fixed
Interest
Rate (i)
LIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
 
U.S. Dollar-denominated interest rate swaps(ii)
 
LIBOR
 
118,750


(18,458
)
 
9.0
 
5.2
%
U.S. Dollar-denominated interest rate swaps(ii)

 
LIBOR
 
21,423


(237
)
 
1.6
 
2.8
%
U.S. Dollar-denominated interest rate swaps(iii)(iv)
 
LIBOR
 
116,018


2,210

 
4.7
 
1.4
%
U.S. Dollar-denominated interest rate swaps(iii)(iv)

 
LIBOR
 
317,194


(19,268
)
 
1.0
 
3.4
%
U.S. Dollar-denominated interest rate swaps(iv)

 
LIBOR
 
172,440


(4,324
)
 
7.0
 
2.3
%
EURIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
 
Euro-denominated interest rate swaps
 
EURIBOR
 
75,089


(8,160
)
 
3.7
 
3.8
%
 
 
 
 


(48,237
)
 
 
 
 
(i)
Excludes the margins the Partnership pays on its floating-rate term loans, which, at December 31, 2019, ranged from 0.30% to 3.25%.
(ii)
Principal amount reduces semi-annually.
(iii)
These interest rate swaps are subject to mandatory early termination in 2020, 2021, and 2024 whereby the swaps will be settled based on their fair value at that time.
(iv)
Principal amount reduces quarterly.

As at December 31, 2019, the Partnership had multiple interest rate swaps, cross currency swaps and foreign currency forward contracts with the same counterparty that are subject to the same master agreement. Each of these master agreements provide for the net settlement of all swaps subject to that master agreement through a single payment in the event of default or termination of any one swap. The fair value of these derivative instruments is presented on a gross basis in the Partnership’s consolidated balance sheets. As at December 31, 2019, these interest rate swaps, cross currency swaps and foreign currency forward contracts had an aggregate fair value asset of $2.2 million (December 31, 2018 – $3.2 million) and an aggregate fair value liability of $74.6 million (December 31, 2018 – $53.6 million). As at December 31, 2019, the Partnership had $14.3 million (December 31, 2018 – $6.8 million) on deposit as security for swap liabilities under certain master agreements. The deposit is presented in restricted cash – current and long-term on the Partnership’s consolidated balance sheets.
Credit Risk
The Partnership is exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, the Partnership 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 of the transactions. In addition, to the extent practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
Other Derivatives
The Partnership's agreement with Teekay Corporation relating to the Toledo Spirit, as described in Note 3a, ended in January 2019 concurrently
with the termination of the Toledo Spirit time-charter contract (see Note 12c). This agreement had a fair value of $1.1 million as at December 31, 2018.

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Partnership’s consolidated balance sheets.

 
 
Accounts receivable/Advances to affiliates $
 
Current portion of derivative assets
$
 
Derivative assets
$
 
Accrued liabilities
$
 
Current portion of derivative liabilities
$
 
Derivative liabilities
$
As at December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge:

 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
—

 
—

 
—

 
(12
)
 
(837
)
 
(3,475
)
Derivatives not designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
21

 
355

 
1,834

 
(2,821
)
 
(14,758
)
 
(28,544
)
Foreign currency forward contracts
 
—

 
—

 
—

 
—

 
(202
)
 
—

Cross currency swap agreements
 
—

 
—

 
—

 
(456
)
 
(22,661
)
 
(18,987
)
 
 
21

 
355

 
1,834

 
(3,289
)
—

(38,458
)
—

(51,006
)
As at December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge:

 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
21

 
784

 
2,362

 
—

 
—

 
—

Derivatives not designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
167

 
11

 
—

 
(2,729
)
 
(6,875
)
 
(31,358
)
Cross currency swap agreements
 
—

 
—

 
—

 
(713
)
 
(4,729
)
 
(23,680
)
Toledo Spirit time-charter derivative
 
1,021

 
40

 
—

 
—

 
—

 
—

 
 
1,209

 
835

 
2,362

 
(3,442
)
 
(11,604
)
—

(55,038
)


Realized and unrealized (losses) gains relating to non-designated interest rate swap agreements, interest rate swaption agreements, and the Toledo Spirit time-charter derivative are recognized in earnings and reported in realized and unrealized (loss) gain on non-designated derivative instruments in the Partnership’s consolidated statements of income. The effect of the (loss) gain on these derivatives on the Partnership’s consolidated statements of income is as follows:
 
 
Year Ended December 31,
 
 
2019
$
 
2018
$
 
2017
$
 
 
Realized gains (losses)
 
Unrealized gains (losses)
 
Total
 
Realized gains (losses)
 
Unrealized gains (losses)
 
Total
 
Realized gains (losses)
 
Unrealized gains (losses)
 
Total
Interest rate swap agreements
 
(10,081)
 
(2,891)
 
(12,972)
 
(14,654)
 
31,061
 
16,407
 
(18,825)
 
12,393
 
(6,432)
Interest rate swap and swaption agreements termination
 
—
 
—
 
—
 
(13,681)
 
—
 
(13,681)
 
(610)
 
—
 
(610)
Interest rate swaption agreements
 
—
 
—
 
—
 
—
 
2
 
2
 
—
 
945
 
945
Foreign currency forward contracts
 
(147)
 
(202)
 
(349)
 
—
 
—
 
—
 
—
 
—
 
—
Toledo Spirit time-charter derivative
 
—
 
(40)
 
(40)
 
1,480
 
(930)
 
550
 
678
 
110
 
788
 
 
(10,228)

(3,133)

(13,361)

(26,855)

30,133

3,278

(18,757)

13,448

(5,309)


Unrealized and realized (losses) gains relating to cross currency swap agreements are recognized in earnings and reported in foreign currency exchange (loss) gain in the Partnership’s consolidated statements of income. The effect of the (loss) gain on these derivatives on the Partnership's consolidated statements of income is as follows:
 
 
Year Ended December 31,
 
 
2019
$
 
2018
$
 
2017
$
 
 
Realized
gains
(losses)
 
Unrealized
gains
(losses)
 
Total
 
Realized
gains
(losses)
 
Unrealized
gains
(losses)
 
Total
 
Realized
gains
(losses)
 
Unrealized
gains
(losses)
 
Total
Cross currency swap agreements
 
(5,061)
 
(13,239)
 
(18,300)
 
(6,533)
 
21,240
 
14,707
 
(9,344)
 
49,047
 
39,703
Cross currency swap agreements termination
 
—

 
—
 
—
 
(42,271)
 
—
 
(42,271)
 
(25,733)
 
—
 
(25,733)
 
 
(5,061)
 
(13,239)
 
(18,300)
 
(48,804)
 
21,240
 
(27,564)
 
(35,077)
 
49,047
 
13,970


For the periods indicated, the following table presents the gains or losses on interest rate swap agreements designated and qualifying as cash flow hedges and their impact on other comprehensive (loss) income (or OCI). The following table excludes any interest rate swap agreements designated and qualifying as cash flow hedges in the Partnership’s equity-accounted joint ventures.
Year Ended December 31, 2019

Amount of Loss Recognized in OCI (i)                                                             $
 
Amount of Gain Reclassified from Accumulated OCI to Interest Expense (i)
$
(7,458)
 
376
Year Ended December 31, 2018

Amount of Gain Recognized in OCI (effective portion) $
 
Amount of Loss Reclassified from Accumulated OCI to Interest Expense (effective portion)
$
 
Amount of Gain Recognized in Interest Expense (ineffective portion)
$
2,128
 
(152)
 
740
Year Ended December 31, 2017

Amount of Gain Recognized in OCI (effective portion) $
 
Amount of Loss Reclassified from Accumulated OCI to Interest Expense (effective portion)
$
 
Amount of Loss Recognized in Interest Expense (ineffective portion)
$
429

(427)
 
(740)
(i)
See Note 2 – adoption of ASU 2017-12.