Debt and Interest Expense

12 Months Ended

Dec. 31, 2019

13. DEBT AND INTEREST EXPENSE

WES Operating is the borrower for all outstanding debt, excluding the WGP RCF, and is expected to be the borrower for all future debt issuances. The following table presents the outstanding debt:



	December 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
Finance lease liabilities ⁽²⁾	7,873		7,873		7,873		—		—		—
Total short-term debt	$	7,873	$	7,873	$	7,873	$	28,000	$	28,000	$	28,000

Long-term debt
5.375% Senior Notes due 2021	$	500,000	$	498,168	$	515,042	$	500,000	$	496,959	$	515,990
4.000% Senior Notes due 2022	670,000		669,322		689,784		670,000		669,078		662,109
3.950% Senior Notes due 2025	500,000		493,830		504,968		500,000		492,837		466,135
4.650% Senior Notes due 2026	500,000		496,197		513,393		500,000		495,710		483,994
4.500% Senior Notes due 2028	400,000		395,113		390,920		400,000		394,631		377,475
4.750% Senior Notes due 2028	400,000		396,190		400,962		400,000		395,841		384,370
5.450% Senior Notes due 2044	600,000		593,470		533,710		600,000		593,349		522,386
5.300% Senior Notes due 2048	700,000		686,843		610,841		700,000		686,648		605,327
5.500% Senior Notes due 2048	350,000		342,432		310,198		350,000		342,328		311,536
RCF	380,000		380,000		380,000		220,000		220,000		220,000
Term loan facility	3,000,000		3,000,000		3,000,000		—		—		—
APCWH Note Payable	—		—		—		427,493		427,493		427,493
Total long-term debt	$	8,000,000	$	7,951,565	$	7,849,818	$	5,267,493	$	5,214,874	$	4,976,815


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


⁽²⁾	Amounts are considered affiliate. See Note 14.

13. DEBT AND INTEREST EXPENSE (CONTINUED)

Debt activity. The following table presents the debt activity for the years ended December 31, 2019 and 2018:



thousands	Carrying Value
Balance at December 31, 2017	$	3,591,678
RCF borrowings	540,000
APCWH Note Payable borrowings	321,780
Issuance of 4.500% Senior Notes due 2028	400,000
Issuance of 5.300% Senior Notes due 2048	700,000
Issuance of 4.750% Senior Notes due 2028	400,000
Issuance of 5.500% Senior Notes due 2048	350,000
Repayment of 2.600% Senior Notes due 2018	(350,000		)
Repayments of RCF borrowings	(690,000		)
Other	(20,584		)
Balance at December 31, 2018	$	5,242,874
RCF borrowings	1,160,000
Term loan facility borrowings	3,000,000
APCWH Note Payable borrowings	11,000
Finance lease liabilities	7,873
Repayments of RCF borrowings	(1,000,000		)
Repayment of WGP RCF borrowings	(28,000		)
Repayment of APCWH Note Payable	(439,595		)
Other	5,286
Balance at December 31, 2019	$	7,959,438

WES Operating Senior Notes. At December 31, 2019, WES Operating was in compliance with all covenants under the relevant governing indentures.

WGP RCF. In February 2018, the Partnership voluntarily reduced the aggregate commitment of lenders under the WGP RCF to $35.0 million. 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. 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 on 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 drawn or undrawn), which also is based on the senior unsecured debt rating. In December 2019, WES Operating entered into an amendment to the RCF 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 December 31, 2019, there were $380.0 million of outstanding borrowings and $4.6 million of outstanding letters of credit, resulting in $1.6 billion of available borrowing capacity under the RCF. As of December 31, 2019 and 2018, the interest rate on any outstanding RCF borrowings was 3.04% and 3.74%, respectively. The facility fee rate was 0.20% at December 31, 2019 and 2018. At December 31, 2019, WES Operating was in compliance with all covenants under the RCF.

13. DEBT AND INTEREST EXPENSE (CONTINUED)

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). 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 on 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 commitments available under the Term loan facility from $2.0 billion to $3.0 billion, the incremental $1.0 billion of which was subsequently drawn by WES Operating on September 13, 2019, and used to repay outstanding borrowings under the RCF, 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 exclusion for debt-offering proceeds.

As of December 31, 2019, there were $3.0 billion of outstanding borrowings under the Term loan facility that were subject to an interest rate of 3.10%. WES Operating was in compliance with all covenants under the Term loan facility as of December 31, 2019. The outstanding borrowings under the Term loan facility were classified as Long-term debt on the consolidated balance sheet at December 31, 2019. In January 2020, WES Operating repaid the outstanding borrowings under the Term loan facility with proceeds from the issuance of the Senior Notes and Floating Rate Notes (see Note 16).

Prior to December 31, 2019, WES Operating GP was indemnified by wholly owned subsidiaries of Occidental 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. These indemnification agreements were terminated as part of the December 2019 Agreements (see Note 1).

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, which was payable at 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 December 31, 2018, the interest rate on the outstanding borrowings was 3.04%. 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. Pursuant to these swap agreements, WES Operating received a floating interest rate indexed to the three-month LIBOR and paid a fixed interest rate. 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. Pursuant to these swap agreements, WES Operating received a fixed interest rate and paid a floating interest rate indexed to the three-month LIBOR, effectively offsetting the swap agreements entered into in December 2018 and March 2019.

In December 2019, all outstanding interest-rate swap agreements were cash-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. These cash payments were classified as cash flows from operating activities in the consolidated statement of cash flows.

13. DEBT AND INTEREST EXPENSE (CONTINUED)

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 years ended December 31, 2019 and 2018, net losses of $125.3 million and $8.0 million, respectively, were recognized, which are included in Other income (expense), net in the consolidated statements of operations.

Valuation of the interest-rate swaps was 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 $8.0 million at December 31, 2018, which is reported within Accrued liabilities on the consolidated balance sheets.

Interest expense. The following table summarizes the amounts included in interest expense:



	Year Ended December 31,
thousands	2019			2018			2017
Third parties
Long-term and short-term debt	$	(315,872	)	$	(200,454	)	$	(143,400	)
Amortization of debt issuance costs and commitment fees	(12,424		)	(9,110		)	(7,970		)
Capitalized interest	26,980			32,479			9,074
Total interest expense – third parties	(301,316		)	(177,085		)	(142,296		)
Affiliates
APCWH Note Payable	(1,833		)	(6,746		)	(153		)
Finance lease liabilities	(137		)	—			—
Deferred purchase price obligation – Anadarko	—			—			(71		)
Total interest expense – affiliates	(1,970		)	(6,746		)	(224		)
Interest expense	$	(303,286	)	$	(183,831	)	$	(142,520	)