Debt and Interest Expense | 10. DEBT AND INTEREST EXPENSE WES Operating is the borrower for all existing debt, excluding the WGP RCF, and is expected to be the borrower for all future debt. The following table presents the outstanding debt: June 30, 2019 December 31, 2018 thousands Principal Carrying Value Fair Value (1) Principal Carrying Value Fair Value (1) Short-term debt WGP RCF $ — $ — $ — $ 28,000 $ 28,000 $ 28,000 Finance lease liabilities (2) 8,381 8,381 8,381 — — — Total short-term debt $ 8,381 $ 8,381 $ 8,381 $ 28,000 $ 28,000 $ 28,000 Long-term debt 5.375% Senior Notes due 2021 $ 500,000 $ 497,556 $ 520,144 $ 500,000 $ 496,959 $ 515,990 4.000% Senior Notes due 2022 670,000 669,198 679,819 670,000 669,078 662,109 3.950% Senior Notes due 2025 500,000 493,329 496,725 500,000 492,837 466,135 4.650% Senior Notes due 2026 500,000 495,951 507,915 500,000 495,710 483,994 4.500% Senior Notes due 2028 400,000 394,869 400,317 400,000 394,631 377,475 4.750% Senior Notes due 2028 400,000 396,014 407,229 400,000 395,841 384,370 5.450% Senior Notes due 2044 600,000 593,408 565,879 600,000 593,349 522,386 5.300% Senior Notes due 2048 700,000 686,744 650,938 700,000 686,648 605,327 5.500% Senior Notes due 2048 350,000 342,379 335,567 350,000 342,328 311,536 RCF 920,000 920,000 920,000 220,000 220,000 220,000 Term loan facility 2,000,000 2,000,000 2,000,000 — — — APCWH Note Payable — — — 427,493 427,493 427,493 Total long-term debt $ 7,540,000 $ 7,489,448 $ 7,484,533 $ 5,267,493 $ 5,214,874 $ 4,976,815 (1) Fair value is measured using the market approach and Level 2 inputs. (2) Amounts are considered affiliate. See Note 11 . Debt activity. The following table presents the debt activity for the six months ended June 30, 2019 : thousands Carrying Value Balance at December 31, 2018 $ 5,242,874 RCF borrowings 700,000 Term loan facility borrowings 2,000,000 APCWH Note Payable borrowings 11,000 Finance lease liabilities 8,381 Repayment of WGP RCF borrowings (28,000 ) Repayment of APCWH Note Payable (439,595 ) Other 3,169 Balance at June 30, 2019 $ 7,497,829 WES Operating Senior Notes. At June 30, 2019 , WES Operating was in compliance with all covenants under the indentures governing its outstanding notes. 10. DEBT AND INTEREST EXPENSE (CONTINUED) WGP RCF. In February 2018, the Partnership voluntarily reduced the aggregate commitments of the lenders under the WGP RCF to $35.0 million . The WGP R CF, which was previously available to be used to buy WES Operating common units and for general partnership purposes, matured in March 2019 and the $28.0 million of outstanding borrowings were repaid. Revolving credit facility. In December 2018, WES Operating entered into an amendment to the senior unsecured revolving credit facility (“RCF”) that (i) subject to the consummation of the Merger (see Note 1 ), increased the size of the RCF from $1.5 billion to $2.0 billion , while leaving the $0.5 billion accordion feature of the RCF unexercised, and (ii) effective on February 15, 2019, exercised one of the one-year extension options to extend the maturity date of the RCF from February 2023 to February 2024. The RCF is expandable to a maximum of $2.5 billion and bears interest at the London Interbank Offered Rate (“LIBOR”), plus applicable margins ranging from 1.00% to 1.50% , or an alternate base rate equal to the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50% , or (c) LIBOR plus 1.00% , in each case plus applicable margins currently ranging from zero to 0.50% , based upon WES Operating’s senior unsecured debt rating. A required quarterly facility fee is paid ranging from 0.125% to 0.250% of the commitment amount (whether used or unused), also based upon the senior unsecured debt rating. As of June 30, 2019 , there was $920.0 million in outstanding borrowings and $4.6 million in outstanding letters of credit, resulting in $1.1 billion available borrowing capacity under the RCF. As of June 30, 2019 and 2018 , the interest rate on any outstanding RCF borrowings was 3.71% and 3.39% , respectively. The facility fee rate was 0.20% at June 30, 2019 and 2018 . At June 30, 2019 , WES Operating was in compliance with all covenants under the RCF. Term loan facility. In December 2018, WES Operating entered into a $2.0 billion 364-day senior unsecured credit facility (the “Term loan facility”), the proceeds of which were used to fund substantially all of the cash portion of the consideration under the Merger Agreement and the payment of related transaction costs (see Note 1 ). The Term loan facility bears interest at LIBOR, plus applicable margins ranging from 1.000% to 1.625% , or an alternate base rate equal to the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50% , or (c) LIBOR plus 1.00% , in each case as defined in the Term loan facility and plus applicable margins currently ranging from zero to 0.625% , based upon WES Operating’s senior unsecured debt rating. Net cash proceeds received from future asset sales and debt or equity offerings must be used to repay amounts outstanding under the facility. In July 2019, WES Operating entered into an amendment to the Term loan facility to (i) extend the maturity date from February 2020 to December 2020, (ii) increase the commitments available under the Term loan facility from $2.0 billion to $3.0 billion , the incremental $1.0 billion of which may be drawn by WES Operating on or before September 30, 2019, and (iii) modify the provision requiring that all debt issuance proceeds be used to repay the Term loan facility to allow for a $1.0 billion carve out of debt offering proceeds. As of June 30, 2019 , there was $2.0 billion in outstanding borrowings under the Term loan facility. As of June 30, 2019 , the interest rate on outstanding Term loan facility borrowings was 3.78% and WES Operating was in compliance with all covenants under the Term loan facility. All of WES Operating’s notes and obligations under the RCF and Term loan facility are recourse to WES Operating GP. WES Operating GP is indemnified by wholly owned subsidiaries of Anadarko against any claims made against WES Operating GP for WES Operating’s long-term debt and/or borrowings under the RCF and Term loan facility. APCWH Note Payable. In June 2017, in connection with funding the construction of the APC water systems, which were acquired as part of the AMA acquisition, APCWH entered into an eight-year note payable agreement with Anadarko. This note payable had a maximum borrowing limit of $500.0 million , and accrued interest, which was payable upon maturity, at the applicable mid-term federal rate based on a quarterly compounding basis as determined by the U.S. Secretary of the Treasury. As of June 30, 2018 , the interest rate on the outstanding borrowings was 2.83% . The APCWH Note Payable was repaid upon the consummation of the Merger. See Note 1 . 10. DEBT AND INTEREST EXPENSE (CONTINUED) Interest-rate swaps. In December 2018 and March 2019, WES Operating entered into interest-rate swap agreements with an aggregate notional amount of $750.0 million and $375.0 million , respectively, to manage interest rate risk associated with anticipated 2019 debt issuances. Pursuant to these swap agreements, a floating interest rate indexed to the three-month LIBOR was exchanged for a fixed interest rate. Depending on market conditions, liability management actions or other factors, WES Operating may settle or amend certain or all of the currently outstanding interest-rate swaps. The following interest-rate swaps were outstanding as of June 30, 2019 : Notional Principal Amount Reference Period Mandatory Termination Date Weighted-Average Interest Rate $375.0 million December 2019 - 2024 December 2019 2.662% $375.0 million December 2019 - 2029 December 2019 2.802% $375.0 million December 2019 - 2049 December 2019 2.885% The Partnership does not apply hedge accounting and, therefore, gains and losses associated with the interest-rate swaps are recognized currently in earnings. For the three and six months ended June 30, 2019 , non-cash losses of $59.0 million and $94.6 million , respectively, were recognized, which are included in Other income (expense), net in the consolidated statements of operations. Valuation of the interest-rate swaps is based on similar transactions observable in active markets and industry standard models that primarily rely on market-observable inputs. Inputs used to estimate fair value in industry standard models are categorized as Level 2 inputs, because substantially all assumptions and inputs are observable in active markets throughout the full term of the instruments. Inputs used to estimate the fair value include market price curves, contract terms and prices, and credit risk adjustments. The fair value of the interest-rate swaps was a liability of $102.6 million and $8.0 million at June 30, 2019 , and December 31, 2018 , respectively, which is reported in Accrued liabilities on the consolidated balance sheets. Credit risk considerations. Over-the-counter traded swaps expose the Partnership to counterparty credit risk. The Partnership monitors the creditworthiness of its counterparties, establishes credit limits according to credit policies and guidelines, and assesses the impact on the fair value of its counterparties’ creditworthiness. Under certain circumstances, the Partnership has the ability to require cash collateral or letters of credit to mitigate its credit risk exposure. The interest-rate swaps are subject to individually negotiated credit provisions that may require collateral of cash or letters of credit depending on the derivative’s portfolio valuation versus negotiated credit thresholds. These credit thresholds generally require full or partial collateralization of the Partnership’s obligations depending on certain credit risk related provisions. Specifically, collateral may be required to be posted with respect to the interest-rate swaps if WES Operating’s credit ratings decline below current levels, the liability associated with the swaps increases substantially or certain credit event of default provisions occur. For example, based on the derivative positions as of June 30, 2019 , if WES Operating’s credit ratings from both Standard and Poor’s and Moody’s Investors Service were below the investment grade thresholds of BBB- and Baa3, respectively, collateral would be required to be posted of up to approximately $44.0 million as of June 30, 2019 . The aggregate fair value of interest-rate swaps with credit risk related contingent features for which a net liability position existed was $82.3 million and $5.7 million at June 30, 2019 , and December 31, 2018 , respectively. 10. DEBT AND INTEREST EXPENSE (CONTINUED) Interest expense. The following table summarizes the amounts included in interest expense: Three Months Ended Six Months Ended thousands 2019 2018 2019 2018 Third parties Long-term and short-term debt $ (82,624 ) $ (48,671 ) $ (149,720 ) $ (90,207 ) Amortization of debt issuance costs and commitment fees (3,170 ) (2,037 ) (6,322 ) (4,901 ) Capitalized interest 6,342 9,872 12,547 16,834 Total interest expense – third parties (79,452 ) (40,836 ) (143,495 ) (78,274 ) Affiliates APCWH Note Payable — (1,409 ) (1,833 ) (1,986 ) Finance lease liabilities (20 ) — (20 ) — Total interest expense – affiliates (20 ) (1,409 ) (1,853 ) (1,986 ) Interest expense $ (79,472 ) $ (42,245 ) $ (145,348 ) $ (80,260 ) |