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:



	March 31, 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
364-day Facility	2,000,000		2,000,000		2,000,000		—		—		—
Total short-term debt	$	2,000,000	$	2,000,000	$	2,000,000	$	28,000	$	28,000	$	28,000

Long-term debt
5.375% Senior Notes due 2021	$	500,000	$	497,257	$	518,755	$	500,000	$	496,959	$	515,990
4.000% Senior Notes due 2022	670,000		669,138		680,293		670,000		669,078		662,109
3.950% Senior Notes due 2025	500,000		493,082		493,788		500,000		492,837		466,135
4.650% Senior Notes due 2026	500,000		495,830		507,034		500,000		495,710		483,994
4.500% Senior Notes due 2028	400,000		394,749		400,050		400,000		394,631		377,475
4.750% Senior Notes due 2028	400,000		395,928		407,849		400,000		395,841		384,370
5.450% Senior Notes due 2044	600,000		593,378		573,949		600,000		593,349		522,386
5.300% Senior Notes due 2048	700,000		686,696		664,278		700,000		686,648		605,327
5.500% Senior Notes due 2048	350,000		342,353		341,536		350,000		342,328		311,536
RCF	640,000		640,000		640,000		220,000		220,000		220,000
APCWH Note Payable	—		—		—		427,493		427,493		427,493
Total long-term debt	$	5,260,000	$	5,208,411	$	5,227,532	$	5,267,493	$	5,214,874	$	4,976,815


⁽¹⁾	Fair value is measured using the market approach and Level 2 inputs.

Debt activity. The following table presents the debt activity for the three months ended March 31, 2019:



thousands	Carrying Value
Balance at December 31, 2018	$	5,242,874
RCF borrowings	420,000
364-day Facility borrowings	2,000,000
APCWH Note Payable borrowings	11,000
Repayment of WGP RCF borrowings	(28,000		)
Repayment of APCWH Note Payable	(439,595		)
Other	2,132
Balance at March 31, 2019	$	7,208,411

WES Operating Senior Notes. At March 31, 2019, WES Operating was in compliance with all covenants under the indentures governing its outstanding notes.

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 RCF, 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.

10. DEBT AND INTEREST EXPENSE (CONTINUED)

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 March 31, 2019, there was $640.0 million in outstanding borrowings and $4.6 million in outstanding letters of credit, resulting in $1.4 billion available borrowing capacity under the RCF. As of March 31, 2019 and 2018, the interest rate on any outstanding RCF borrowings was 3.79% and 3.18%, respectively. The facility fee rate was 0.20% at March 31, 2019 and 2018. At March 31, 2019, WES Operating was in compliance with all covenants under the RCF.

364-day Facility. In December 2018, WES Operating entered into a $2.0 billion 364-day senior unsecured credit facility (the “364-day 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 364-day Facility will mature in February 2020, and 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 364-day 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.

As of March 31, 2019, there was $2.0 billion in outstanding borrowings under the 364-day Facility. As of March 31, 2019, the interest rate on outstanding 364-day Facility borrowings was 3.87% and WES Operating was in compliance with all covenants under the 364-day Facility. The 364-day Facility was classified as short-term debt on the consolidated balance sheets at March 31, 2019.

All of WES Operating’s notes and obligations under the RCF and 364-day 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 364-day 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 March 31, 2018, the interest rate on the outstanding borrowings was 2.54%. The APCWH Note Payable was repaid upon the consummation of the Merger. See Note 1 and Note 6.

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 March 31, 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 months ended March 31, 2019, a non-cash loss of $35.6 million was recognized, which is 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 $43.6 million and $8.0 million at March 31, 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 March 31, 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 $18.6 million as of March 31, 2019. The aggregate fair value of interest-rate swaps with credit risk related contingent features for which a net liability position existed was $35.1 million and $5.7 million at March 31, 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 March 31,
thousands	2019			2018
Third parties
Long-term and short-term debt	$	(67,096	)	$	(41,536	)
Amortization of debt issuance costs and commitment fees	(3,152		)	(2,864		)
Capitalized interest	6,205			6,962
Total interest expense – third parties	(64,043		)	(37,438		)
Affiliates
APCWH Note Payable	(1,833		)	(577		)
Total interest expense – affiliates	(1,833		)	(577		)
Interest expense	$	(65,876	)	$	(38,015	)