FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2011

NOTE 11 FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable and other, accounts payable and accrued liabilities, and accrued interest approximate their fair values because of the short maturity or duration of these instruments, or because the instruments carry a variable rate of interest or a rate that approximates current rates. The fair value of the Partnership’s long-term debt is estimated by discounting the future cash flows of each instrument at estimated current borrowing rates. The estimated fair value of the Partnership’s long-term debt at June 30, 2011 is $694.8 million (December 31, 2010 – $513.9 million).

The Partnership’s long-term debt results in exposures to changing interest rates. The Partnership uses derivatives to assist in managing its exposure to interest rate risk.

The interest rate swaps and options are structured such that the cash flows match those of the Senior Credit Facility. The notional amount hedged was $300.0 million at June 30, 2011 (December 31, 2010 – $375.0 million). $300.0 million of variable-rate debt is hedged by an interest rate swap through December 12, 2011, where the weighted average fixed interest rate paid is 4.89 percent. $75.0 million of variable-rate debt was hedged by an interest rate swap through February 28, 2011, where the fixed interest rate paid was 3.86 percent. In addition to these fixed rates, the Partnership pays an applicable margin in accordance with the Senior Credit Facility agreement.

Financial instruments are recorded at fair value on a recurring basis and are categorized into one of three categories based upon a fair value hierarchy. The Partnership has classified all of its derivative financial instruments as Level II for all periods presented where the fair value is determined by using valuation techniques that refer to observable market data or estimated market prices. At June 30, 2011, the fair value of the interest rate swaps accounted for as hedges was classified as a current liability and was negative $6.9 million (December 31, 2010 – negative $13.8 million). The fair value of the interest rate swaps was calculated using the period-end interest rate for instruments with similar features; therefore, it is expected that this fair value will fluctuate over the year as interest rates change. For the three and six months ended June 30, 2011, the Partnership recorded interest expense of $3.5 million and $7.4 million on the interest rate swaps and options (2010 – $4.1 million and $8.3 million).