Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Fair Value Measurements

Fair Value Measurements

(14) Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), sets forth a framework for measuring fair value and required disclosures about fair value measurements of assets and liabilities. Fair value under ASC 820 is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, use of unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued.

ASC 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Partnership’s derivative contracts primarily consist of commodity swap contracts which are not traded on a public exchange. The fair values of commodity swap contracts are determined using discounted cash flow techniques. The techniques incorporate Level 1 and Level 2 inputs for future commodity prices that are readily available in public markets or can be derived from information available in publicly quoted markets. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk and are classified as Level 2 in hierarchy.

Net assets (liabilities) measured at fair value on a recurring basis are summarized below (in millions):

	Level 2
	December 31,
	2016		2015
Commodity Swaps (1)	$	(6.3)	$	13.8
Total	$	(6.3)	$	13.8

(1) The fair value of derivative contracts included in assets or liabilities for risk management activities represents the amount at which the instruments could be exchanged in a current arms-length transaction adjusted for credit risk of the Partnership and/or the counterparty as required under ASC 820.

Fair Value of Financial Instruments

The estimated fair value of the Partnership’s financial instruments has been determined by the Partnership using available market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided below are not necessarily indicative of the amount the Partnership could realize upon the sale or refinancing of such financial instruments (in millions):

	December 31, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Long-term debt	$	3,295.3	$	3,253.6	$	3,066.0	$	2,585.5
Installment Payables	$	473.2	$	476.6	$	—	$	—
Obligations under capital lease	$	6.6	$	6.1	$	16.7	$	15.6

(1) The carrying values of long-term debt are reduced by debt issuance costs of $24.6 million and $23.8 million at December 31, 2016 and 2015, respectively. The respective fair values do not factor in debt issuance costs.

The carrying amounts of the Partnership’s cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term maturities of these assets and liabilities.

The Partnership had $120.0 million and $414.0 million in outstanding borrowings under its revolving credit facility as of December 31, 2016 and 2015, respectively. The Company had $27.8 million in outstanding borrowings under the credit facility as of December 31, 2016. As borrowings under these credit facilities accrue interest under floating interest rate structures, the carrying values of such indebtedness approximate fair values for the amounts outstanding under the credit facilities. As of December 31, 2016, the Partnership had total borrowings of $3.1 billion under senior unsecured notes maturing between 2019 and 2045 with fixed interest rates ranging from 2.7% to 7.1%. As of December 31, 2015, the Partnership had total borrowings of $2.7 billion maturing between 2019 and 2045 with fixed interest rates ranging from 2.7% to 7.1%. The fair value of all senior unsecured notes as of December 31, 2016 and 2015 was based on Level 2 inputs from third-party market quotations. The fair value of obligations under capital leases was calculated using Level 2 inputs from third-party banks.