propane distributors. In the NGL Logistics Segment, our principal customers include an affiliate of DCP
Midstream, LLC, producers and marketing companies. Substantially all of our natural gas, propane and NGL
sales are made at market-based prices. This concentration of credit risk may affect our overall credit risk, as
these customers may be similarly affected by changes in economic, regulatory or other factors. Where exposed
to credit risk, we analyze the counterparties’ financial condition prior to entering into an agreement, establish
credit limits, and monitor the appropriateness of these limits on an ongoing basis. We operate under DCP
Midstream, LLC’s corporate credit policy. DCP Midstream, LLC’s corporate credit policy, as well as the
standard terms and conditions of our agreements, prescribe the use of financial responsibility and reasonable
grounds for adequate assurances. These provisions allow our credit department to request that a counterparty
remedy credit limit violations by posting cash or letters of credit for exposure in excess of an established credit
line. The credit line represents an open credit limit, determined in accordance with DCP Midstream, LLC’s
credit policy. Our standard agreements also provide that the inability of a counterparty to post collateral is
sufficient cause to terminate a contract and liquidate all positions. The adequate assurance provisions also allow
us to suspend deliveries, cancel agreements or continue deliveries to the buyer after the buyer provides security
for payment to us in a satisfactory form.
Interest Rate Risk
Interest rates on future credit facility draws and debt offerings could be higher than current levels, causing
our financing costs to increase accordingly. Although this could limit our ability to raise funds in the debt
capital markets, we expect to remain competitive with respect to acquisitions and capital projects, as our
competitors would face similar circumstances.
We mitigate a portion of our interest rate risk with interest rate swaps and forward-starting interest rate
swaps that reduce our exposure to market rate fluctuations by converting variable interest rates on our existing
debt to fixed interest rates and locking in rates on our anticipated future fixed-rate debt, respectively. The
interest rate swap agreements convert the interest rate associated with the indebtedness outstanding under our
revolving credit facility to a fixed-rate obligation, thereby reducing the exposure to market rate fluctuations.
The forward-starting interest rate swap agreements lock in the interest rate associated with our anticipated
future fixed-rate debt, thereby reducing the exposure to market rate fluctuations prior to issuance.
At December 31, 2011, we had interest rate swap agreements totaling $450.0 million, of which we have
designated $425.0 million as cash flow hedges and account for the remaining $25.0 million under the
mark-to-market method of accounting. As we generally expect to have variable-rate debt levels equal to or
exceeding our swap positions during their term, the entire $450.0 million of these arrangements mitigate our
interest rate risk through June 2012, with $150.0 million extending from June 2012 through June 2014. Based
on our current operations we believe our interest rate swap agreements mitigate our interest rate risk associated
with our variable-rate debt. As of February 23, 2012, we had interest rate swap agreements totaling $450.0
million, of which we have designated $425.0 million as cash flow hedges and account for the remaining $25.0
million under the mark-to-market method of accounting.
At December 31, 2011, we had forward-starting interest rate swap agreements totaling $195.0 million,
which we have designated as cash flow hedges. As we anticipate entering into future fixed-rate debt at levels
equal to or exceeding our forward-starting swap positions during their term, the entire $195.0 million of these
arrangements mitigate a portion of our interest rate risk through the term of our anticipated debt into 2022.
Under the terms of the forward-starting interest rate swap agreements, we will pay fixed-rates ranging from
2.15% to 2.598%, and receive interest payments approximating 10-year U.S. Treasury rates. Based on our
current operations we believe our forward-starting interest rate swap agreements mitigate a portion of our
interest rate risk associated with our anticipated future fixed-rate debt.
Effectiveness of our interest rate swap agreements designated as cash flow hedges is determined by
matching the principal balance and terms with that of the specified obligation. The effective portions of changes
in fair value are recognized in AOCI in the consolidated balance sheets and are reclassified into earnings as the
hedged transactions impact earnings. Ineffective portions of changes in fair value are recognized in earnings.
At December 31, 2010, we had interest rate swap agreements totaling $450.0 million, of which we had
designated $275.0 million as cash flow hedges and accounted for the remaining $175.0 million under the
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