Derivative Instruments

Interest rate swap agreements

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 LIBOR-denominated borrowings.

As at June 30, 2017, the Company was committed to the following interest rate swap agreements:



	Interest Rate	Notional Amount	Fair Value / Carrying Amount of Asset	Remaining Term	Fixed Interest Rate
	Index	$	$	(years)	(%)⁽¹⁾
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate swaps	LIBOR	161,985	513	3.5	1.46
U.S. Dollar-denominated interest rate swaps	LIBOR	150,000	1,159	3.5	1.55
U.S. Dollar-denominated interest rate swaps	LIBOR	50,000	1,072	3.5	1.16


(1)	Excludes the margin the Company pays on its variable-rate debt, which, as of June 30, 2017, ranged from 0.30% to 2.00%.

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 interest rate swap agreements 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.

Stock purchase warrant

The Company has a stock purchase warrant entitling it to purchase up to 750,000 shares of common stock of TIL at a fixed price of $10 per share. Alternatively, if the shares of TIL’s common stock trade on a national securities exchange or over-the-counter market denominated in Norwegian Kroner, the Company may also exercise the stock purchase warrant at 61.67 Norwegian Kroner (or NOK) per share. The stock purchase warrant expires on January 23, 2019. For purposes of vesting, the stock purchase warrant is divided into four equally sized tranches. If the shares of TIL’s common stock trade on a national securities exchange or over-the-counter market denominated in Norwegian Kroner, each tranche will vest and become exercisable when and if the fair market value of a share of the TIL common stock equals or exceeds 77.08 NOK, 92.50 NOK, 107.91 NOK and 123.33 NOK, respectively, for such tranche for any ten consecutive trading days, subject to certain trading value requirements. As at June 30, 2017, the first two tranches had vested. Upon completion of the Merger Agreement (see note 5b), the stock purchase warrant will be cancelled. As a result, no value is recorded for this warrant on the Company's balance sheet at June 30, 2017 (see note 9).

Time-charter swap agreement

Effective June 1, 2016, the Company entered into a time-charter swap agreement for 55% of two Aframax equivalent vessels. Under such agreement, the Company will receive $27,776 per day, less a 1.25% brokerage commission, and pay 55% of the net revenue distribution of two Aframax equivalent vessels employed in the Company’s Aframax revenue sharing arrangement, less $500 per day, for a period of 11 months plus an additional two months at the counterparty’s option. The purpose of the agreement is to reduce the Company’s exposure to spot tanker market rate variability for certain of its vessels that are employed in the Aframax revenue sharing arrangement. The Company has not designated, for accounting purposes, the time-charter swap as a cash flow hedge. As of May 1, 2017, the time-charter swap counter-party did not exercise the two-month option and as such, the agreement was completed as of June 30, 2017.

Forward freight agreements

The Company uses forward freight agreements (or FFAs) in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized loss on derivative instruments in the Company's consolidated statements of (loss) income.

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



	Current portion of derivative assets	Derivative assets	Accrued liabilities		Current portion of derivative liabilities
	$	$	$		$
As at June 30, 2017
Interest rate swap agreements	89	2,920	(118	)	(265	)
Time-charter swap agreement	—	—	(21	)	—
Forward freight agreements	27	—	(10	)	—
	116	2,920	(149	)	(265	)

As at December 31, 2016
Interest rate swap agreements	—	4,251	(254	)	(1,108	)
Stock purchase warrant	—	287	—		—
Time-charter swap agreement	875	—	(667	)	—
	875	4,538	(921	)	(1,108	)

Realized and unrealized gains (losses) relating to the interest rate swaps, stock purchase warrant, time-charter swap and freight forward agreements are recognized in earnings and reported in realized and unrealized gain (loss) on derivative instruments in the Company’s consolidated statements of income as follows:



	Three Months Ended						Three Months Ended
	June 30, 2017						June 30, 2016
	Realized (losses) gains		Unrealized losses		Total		Realized (losses) gains		Unrealized (losses) gains		Total
	$		$		$		$		$		$
Interest rate swap agreements	(301	)	(1,101	)	(1,402	)	(1,276	)	(1,808	)	(3,084	)
Stock purchase warrant	—		(166	)	(166	)	—		(2,137	)	(2,137	)
Time-charter swap agreement	360		(402	)	(42	)	126		1,345		1,471
Forward freight agreements	80		(30	)	50		—		—		—
	139		(1,699	)	(1,560	)	(1,150	)	(2,600	)	(3,750	)

	Six Months Ended						Six Months Ended
	June 30, 2017						June 30, 2016
	Realized (losses) gains		Unrealized losses		Total		Realized (losses) gains		Unrealized gains (losses)		Total
Interest rate swap agreements	(740	)	(399	)	(1,139	)	(10,868)		2,114		(8,754)
Stock purchase warrant	—		(287	)	(287	)	—		(4,248	)	(4,248	)
Time-charter swap agreement	1,106		(875	)	231		126		1,345		1,471
Forward freight agreements	113		(17	)	96		—		—		—
	479		(1,578	)	(1,099	)	(10,742	)	(789	)	(11,531	)