Debt and Interest Expense | 11. DEBT AND INTEREST EXPENSE WES Operating is the borrower for all outstanding debt and is expected to be the borrower for all future debt issuances. The following table presents the outstanding debt: June 30, 2020 December 31, 2019 thousands Principal Carrying Fair Value (1) Principal Carrying Fair Value (1) Short-term debt 5.375% Senior Notes due 2021 $ 431,081 $ 430,049 $ 437,442 $ — $ — $ — Finance lease liabilities (2) 8,570 8,570 8,570 7,873 7,873 7,873 Total short-term debt $ 439,651 $ 438,619 $ 446,012 $ 7,873 $ 7,873 $ 7,873 Long-term debt 5.375% Senior Notes due 2021 $ — $ — $ — $ 500,000 $ 498,168 $ 515,042 4.000% Senior Notes due 2022 584,417 583,937 580,390 670,000 669,322 689,784 Floating-Rate Senior Notes due 2023 289,978 288,322 274,219 — — — 3.100% Senior Notes due 2025 1,000,000 992,109 954,941 — — — 3.950% Senior Notes due 2025 500,000 494,343 470,309 500,000 493,830 504,968 4.650% Senior Notes due 2026 500,000 496,450 481,202 500,000 496,197 513,393 4.500% Senior Notes due 2028 400,000 395,362 379,742 400,000 395,113 390,920 4.750% Senior Notes due 2028 400,000 396,370 384,618 400,000 396,190 400,962 4.050% Senior Notes due 2030 1,200,000 1,188,951 1,160,136 — — — 5.450% Senior Notes due 2044 600,000 593,533 501,525 600,000 593,470 533,710 5.300% Senior Notes due 2048 700,000 686,944 573,902 700,000 686,843 610,841 5.500% Senior Notes due 2048 350,000 342,487 289,423 350,000 342,432 310,198 5.250% Senior Notes due 2050 1,000,000 983,411 873,172 — — — RCF 75,000 75,000 75,000 380,000 380,000 380,000 Term loan facility — — — 3,000,000 3,000,000 3,000,000 Finance lease liabilities 27,177 27,177 27,177 — — — Total long-term debt $ 7,626,572 $ 7,544,396 $ 7,025,756 $ 8,000,000 $ 7,951,565 $ 7,849,818 (1) Fair value is measured using the market approach and Level-2 fair value inputs. (2) Includes related-party amounts as of December 31, 2019. 11. DEBT AND INTEREST EXPENSE (CONTINUED) Debt activity. The following table presents the debt activity for the six months ended June 30, 2020: thousands Carrying Value Balance at December 31, 2019 $ 7,959,438 RCF borrowings 125,000 Issuance of Floating-Rate Senior Notes due 2023 300,000 Issuance of 3.100% Senior Notes due 2025 1,000,000 Issuance of 4.050% Senior Notes due 2030 1,200,000 Issuance of 5.250% Senior Notes due 2050 1,000,000 Finance lease liabilities 27,875 Repayments of RCF borrowings (430,000) Repayment of Term loan facility borrowings (3,000,000) Repayment of 5.375% Senior Notes due 2021 (68,919) Repayment of 4.000% Senior Notes due 2022 (85,583) Repayment of Floating-Rate Senior Notes due 2023 (10,022) Other (34,774) Balance at June 30, 2020 $ 7,983,015 WES Operating Senior Notes. In January 2020, WES Operating issued the following notes: • Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050, offered to the public at prices of 99.962%, 99.900%, and 99.442%, respectively, of the face amount (collectively referred to as the “Fixed-Rate Senior Notes”). Including the effects of the issuance and underwriting discounts, the effective interest rates of the Senior Notes due 2025, 2030, and 2050, are 3.287%, 4.168%, and 5.362%, respectively. Interest is paid on each such series semi-annually on February 1 and August 1 of each year, beginning August 1, 2020; and • Floating-Rate Senior Notes due 2023 (the “Floating-Rate Senior Notes”). As of June 30, 2020, the interest rate on the Floating-Rate Senior Notes was 2.66%. Interest is paid quarterly in arrears on January 13, April 13, July 13, and October 13 of each year. Interest is determined at a benchmark rate (which is initially a three-month London Interbank Offered Rate) on the interest determination date plus 0.85%. Net proceeds from the Fixed-Rate Senior Notes and Floating-Rate Senior Notes were used to repay the $3.0 billion in outstanding borrowings under the Term loan facility and outstanding amounts under the RCF, and for general partnership purposes. The interest payable on each of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes is subject to adjustment from time to time if the credit rating assigned to such notes declines below certain specified levels or if credit-rating downgrades are subsequently followed by credit-rating upgrades. In March 2020, Fitch Ratings (“Fitch”) and Standard and Poor’s (“S&P”) downgraded WES Operating’s long-term debt from “BBB-” to “BB+.” In May 2020, Fitch downgraded WES Operating’s long-term debt to “BB” and in June 2020, Moody’s Investors Service downgraded WES Operating’s long-term debt from “Ba1” to “Ba2.” As a result of these downgrades, annualized borrowing costs will increase by $35.0 million. 11. DEBT AND INTEREST EXPENSE (CONTINUED) During the first quarter of 2020, WES Operating purchased and retired $61.4 million of the 5.375% Senior Notes due 2021 and $38.6 million of the 4.000% Senior Notes due 2022 via open-market repurchases. During the second quarter of 2020, WES Operating purchased and retired (i) an additional $7.5 million of the 5.375% Senior Notes due 2021 and $47.0 million of the 4.000% Senior Notes due 2022, and (ii) $10.0 million of the Floating-Rate Senior Notes, each via open-market repurchases. For the three and six months ended June 30, 2020, gains of $1.4 million and $11.0 million, respectively, were recognized for the early retirement of these notes. As of June 30, 2020, the 5.375% Senior Notes due 2021 were classified as short-term debt on the consolidated balance sheet. At June 30, 2020, WES Operating was in compliance with all covenants under the relevant governing indentures. WGP RCF. The WGP RCF, which previously was available to purchase 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 2019, WES Operating entered into an amendment to the RCF, which is expandable to a maximum of $2.5 billion, to, among other things, exercise the final one-year extension option to extend the maturity date of the RCF from February 2024 to February 2025, for each extending lender. The maturity date with respect to each non-extending lender, whose commitments represent $100.0 million out of $2.0 billion of total commitments from all lenders, remains February 2024. See Note 1 . As of June 30, 2020, there were $75.0 million of outstanding borrowings and $5.0 million of outstanding letters of credit, resulting in $1.9 billion of available borrowing capacity under the RCF. As of June 30, 2020 and 2019, the interest rate on any outstanding RCF borrowings was 1.66% and 3.71%, respectively. The facility-fee rate was 0.25% and 0.20% at June 30, 2020 and 2019, respectively. At June 30, 2020, WES Operating was in compliance with all covenants under the RCF. As a result of credit-rating downgrades received from Fitch and S&P (see WES Operating Senior Notes above), beginning in the second quarter of 2020, the interest rate on outstanding RCF borrowings increased by 0.20% and the RCF facility-fee rate increased by 0.05%, from 0.20% to 0.25%. Term loan facility. In December 2018, WES Operating entered into the Term loan facility, the proceeds from 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 ). As of June 30, 2019, the interest rate on the outstanding borrowings was 3.78%. In January 2020, WES Operating repaid the outstanding borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes and terminated the Term loan facility (see WES Operating Senior Notes above). During the first quarter of 2020, a loss of $2.3 million was recognized for the early termination of the Term loan facility. Finance lease liabilities. The Partnership subleased equipment from Occidental via finance leases through April 2020. During the first quarter of 2020, the Partnership entered into finance leases with third parties for equipment and vehicles extending through 2029, with future lease payments of $41.3 million as of June 30, 2020. APCWH Note Payable. In June 2017, in connection with funding the construction of the APC water systems that 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, including accrued interest. The APCWH Note Payable was repaid at Merger completion. See Note 1 . Interest-rate swaps. In December 2018 and March 2019, WES Operating entered into interest-rate swap agreements with an aggregate notional principal amount of $750.0 million and $375.0 million, respectively, to manage interest-rate risk associated with anticipated debt issuances. In November and December 2019, WES Operating entered into additional interest-rate swap agreements with an aggregate notional principal amount of $1,125.0 million, effectively offsetting the swap agreements entered into in December 2018 and March 2019. 11. DEBT AND INTEREST EXPENSE (CONTINUED) In December 2019, all outstanding interest-rate swap agreements were settled. As part of the settlement, WES Operating made cash payments of $107.7 million and recorded an accrued liability of $25.6 million to be paid quarterly in 2020. For the six months ended June 30, 2020, WES Operating made cash payments of $12.8 million. These cash payments were classified as cash flows from operating activities in the consolidated statements of cash flows. The Partnership did not apply hedge accounting and, therefore, gains and losses associated with the interest-rate swap agreements were recognized 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. Interest expense. The following table summarizes the amounts included in interest expense: Three Months Ended Six Months Ended thousands 2020 2019 2020 2019 Third parties Long-term and short-term debt $ (89,650) $ (82,624) $ (179,419) $ (149,720) Finance lease liabilities (388) — (793) — Amortization of debt issuance costs and commitment fees (3,462) (3,170) (6,589) (6,322) Capitalized interest (1,154) 6,342 3,604 12,547 Total interest expense – third parties (94,654) (79,452) (183,197) (143,495) Related parties APCWH Note Payable — — — (1,833) Finance lease liabilities — (20) (43) (20) Total interest expense – related parties — (20) (43) (1,853) Interest expense $ (94,654) $ (79,472) $ (183,240) $ (145,348) |