Note 8 - Debt

Debt Balance, Net of Unamortized Issuance Costs (in millions)



	December 31,
	2018			2017
Revolving Credit Facility	$	945		$	423
Dropdown Credit Facility	300			—
MPC Loan Agreement	—			—
5.500% Senior Notes due 2019	500			500
3.500% Senior Notes due 2022 (a)	500			500
6.250% Senior Notes due 2022	300			300
6.375% Senior Notes due 2024	450			450
5.250% Senior Notes due 2025	750			750
4.250% Senior Notes due 2027 (a)	750			750
5.200% Senior Notes due 2047 (a)	500			500
Capital lease obligations	15			9
Total Debt	5,010			4,182
Unamortized issuance costs (a)	(46		)	(54		)
Current maturities, net of unamortized issuance costs	(504		)	(1		)
Debt, Net of Current Maturities and Unamortized Issuance Costs	$	4,460		$	4,127


(a)	Unamortized discounts of $4 million and $5 million associated with these senior notes are included in unamortized issuance costs at December 31, 2018 and 2017, respectively.

The aggregate maturities of our debt, including the principal payments of our capital lease obligations, for each of the five years following December 31, 2018 are $504 million in 2019, $2 million in 2020, $1.2 billion in 2021, $802 million in 2022 and $1 million in 2023.

Revolving Credit Facility and Dropdown Credit Facility

We are party to our $1.1 billion Revolving Credit Facility and our $1.0 billion Dropdown Credit Facility (together, the “Credit Facilities”). On January 5, 2018, we amended our Credit Facilities to, among other things, (i) increase the aggregate commitments from $600 million to $1.1 billion, (ii) add certain financial institutions as additional lenders under the Revolving Credit Facility and (iii) make certain changes to our Credit Facilities to permit the incurrence of incremental loans (to be shared between the Credit Facilities), subject to the satisfaction of certain conditions. The total aggregate available facility limits for the Credit Facilities totaled $2.1 billion at December 31, 2018. The Credit Facilities mature on January 29, 2021.

On December 20, 2018, we amended our Credit Facilities to, among other things, (i) grant additional flexibility to the Partnership and its subsidiaries to create liens and incur indebtedness, subject to the negative financial covenant that requires us to maintain a Consolidated Leverage Ratio (as defined in the credit agreements) of no greater than 5.0 to 1.0 (or 5.5 to 1.0 during the two fiscal quarters following certain acquisitions), (ii) remove restrictions on the ability of the Partnership and its subsidiaries to make investments and (iii) grant additional flexibility to the Partnership and its subsidiaries to enter into acquisitions, sell or dispose of assets and enter into related party transactions. In addition, we amended our Credit Facilities to make certain legal and technical updates to the revolving credit facility agreements, including the removal of collateral and security provisions that are no longer applicable and changes to reflect the previously reported acquisition of Andeavor by MPC effective on October 1, 2018.

Our Revolving Credit Facility provided for total loan capacity of $1.1 billion as of December 31, 2018. Our Revolving Credit Facility is non-recourse to Marathon, except for TLGP, and is guaranteed by substantially all of our consolidated subsidiaries. As of December 31, 2018, there was $945 million in borrowings outstanding under the Revolving Credit Facility, which had unused credit availability of $155 million, or 14% of the borrowing capacity. The weighted average interest rate for borrowings under our Revolving Credit Facility was 4.33% at December 31, 2018.

As of December 31, 2018, the Dropdown Credit Facility provided for total loan availability of $1.0 billion. We had $300 million in borrowings outstanding under the Dropdown Credit Facility, which had unused credit availability of $700 million, or 70% of the borrowing capacity. The weighted average interest rate for borrowings under our Dropdown Credit Facility was 4.14% at December 31, 2018.

Covenants

Our Credit Facility agreements both contain representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for agreements of these types. The sole financial covenant that we are required to maintain, as of the last day of the fiscal quarter, is a Consolidated Leverage Ratio (as defined in the Credit Facility agreements) of no greater than 5.00 to 1.00. As of December 31, 2018, we were in compliance with this financial covenant.

Loan Agreement

On December 21, 2018, we entered into the MPC Loan Agreement. Under the terms of the MPC Loan Agreement, MPC will make a loan to the Partnership on a revolving basis as requested by the Partnership and as agreed to by MPC, in an amount or amounts that do not result in the aggregate principal amount of all loans outstanding exceeding $500 million at any one time. The MPC Loan Agreement matures and the entire unpaid principal amount of the Loan, together with all accrued and unpaid interest and other amounts, if any, owed by the Partnership under the MPC Loan Agreement will become due and payable on December 21, 2023, provided that MPC may demand payment of all or any portion of the outstanding principal amount of the Loan, together with all accrued and unpaid interest and other amounts, if any, at any time prior to the maturity date. Interest will accrue on the unpaid principal amount of the Loan at a rate equal to the sum of (i) the one-month term LIBOR for dollar deposits, plus (ii) a premium of 175 basis points (or such lower premium then applicable under the Partnership’s credit agreements). There were no borrowings under the MPC Loan Agreement during 2018.

WNRL Repayment

At the time of the WNRL Merger, WNRL had a $500 million senior secured revolving credit facility (“WNRL Revolving Credit Facility”) and $300 million of 7.5% senior notes (the “WNRL Senior Notes”). In connection with the WNRL Merger, all amounts outstanding were repaid with borrowings on the Revolving Credit Facility and the WNRL Revolving Credit Facility was terminated. In addition, the WNRL Senior Notes were repaid for $326 million, including accrued interest of $4 million and a premium of $22 million, with borrowings on the Revolving Credit Facility.

Senior Notes

5.500% Senior Notes Due 2019

In October 2014, we completed a private offering of $1.3 billion aggregate principal amount of senior notes pursuant to a private placement transaction conducted under Rule 144A and Regulation S of the Securities Act of 1933, as amended. The $1.3 billion of aggregate principal senior notes consisted of $500 million senior notes due in 2019 (the “2019 Notes”) at 5.500%, which approximates the effective interest rate, and $800 million of 6.250% senior notes due in 2022 (the “6.250% 2022 Notes”). The proceeds from the 2019 Notes were used to repay amounts outstanding under our Revolving Credit Facility and to fund the Rockies Natural Gas Business Acquisition. We completed a registered exchange offer to exchange the 2019 Notes for debt securities with substantially identical terms in April 2016.

The 2019 Notes have no sinking fund requirements. We may redeem some or all of the 2019 Notes prior to September 15, 2019, at a make-whole price, and at par thereafter, plus accrued and unpaid interest. The 2019 Notes are unsecured and guaranteed by all of our consolidated subsidiaries, with the exception of Tesoro Logistics Finance Corp., the co-issuer, and are non-recourse to Marathon, except for TLGP, and contain customary terms, events of default and covenants for an issuance of non-investment grade securities.

3.500% Senior Notes Due 2022

In November 2017, we issued $500 million aggregate principal amount of senior notes due in 2022 at 3.500% (the “3.500% 2022 Notes”), which approximates the effective interest rate. The proceeds from the 3.500% 2022 Notes were used to repay a portion of our 5.875% senior notes due in 2020 and 6.125% senior notes due in 2021, as well as borrowings under the Dropdown Credit Facility.

The 3.500% 2022 Notes will mature on December 1, 2022 and have no sinking fund requirements. The 3.500% 2022 Notes may be redeemable in whole at any time or in part from time to time, at our option, prior to November 1, 2022. We may redeem the 3.500% 2022 Notes at a redemption price equal to the greater of 100% of the principal amount or the sum of the present value of the remaining scheduled principal and interest payments. The 3.500% 2022 Notes are unsecured and guaranteed by all of our consolidated subsidiaries, with the exception of Tesoro Logistics Finance Corp., the co-issuer, and are non-recourse to Marathon, except for TLGP, and contain customary terms, events of default and covenants for an issuance of investment grade securities.

6.250% Senior Notes Due 2022

In October 2014, we issued the 6.250% 2022 Notes, which approximates the effective interest rate. The proceeds from the 6.250% 2022 Notes were used to fund a portion of the Rockies Natural Gas Business Acquisition. We used the net proceeds from the sale of 600,000 Preferred Units to primarily redeem $500 million principal amount of our 6.250% 2022 Notes.

The 6.250% 2022 Notes have no sinking fund requirements. The 6.250% 2022 Notes may be redeemed at premiums equal to 3.125% through October 15, 2019; 1.563% from October 15, 2019 through October 15, 2020; and at par thereafter, plus accrued and unpaid interest. The 6.250% 2022 Notes are unsecured and guaranteed by all of our consolidated subsidiaries, with the exception of Tesoro Logistics Finance Corp., the co-issuer, and are non-recourse to Marathon, except for TLGP, and contain customary terms, events of default and covenants for an issuance of non-investment grade securities.

6.375% Senior Notes Due 2024

In May 2016, we issued $450 million aggregate principal amount of senior notes due in 2024 (the “2024 Notes”) at 6.375%, which approximates the effective interest rate. We used the proceeds of the offering to repay amounts outstanding under the Revolving Credit Facility and for general partnership purposes.

The 2024 Notes have no sinking fund requirements and we may redeem some or all of the 2024 Notes, prior to May 1, 2019, at a make-whole price plus accrued and unpaid interest, if any. On or after May 1, 2019, the 2024 Notes may be redeemed at premiums equal to 4.781% through May 1, 2020; 3.188% through May 1, 2021; 1.594% from May 1, 2021 through May 1, 2022; and at par thereafter, plus accrued and unpaid interest. We will have the right to redeem up to 35% of the aggregate principal amount at 106.375% face value with proceeds from certain equity issuances through May 1, 2019. The 2024 Notes are unsecured and guaranteed by all of our consolidated subsidiaries, except Tesoro Logistics Finance Corp., the co-issuer, and are non-recourse to Marathon, except for TLGP, and contain customary terms, events of default and covenants for an issuance of non-investment grade securities.

5.250% Senior Notes Due 2025

In December 2016, we issued $750 million aggregate principal amount of the senior notes due in 2025 (the “2025 Notes”) at 5.250%, which approximates the effective interest rate. The proceeds from this offering were used to repay amounts outstanding under the Dropdown Credit Facility.

The 2025 Notes have no sinking fund requirements. We may redeem some or all of the 2025 Notes prior to January 15, 2021, at a make-whole price, plus any accrued and unpaid interest. On or after January 15, 2021, the 2025 Notes may be redeemed at premiums equal to 2.625% through January 15, 2022; 1.313% through January 15, 2023; and at par thereafter, plus accrued and unpaid interest. We will have the right to redeem up to 35% of the aggregate principal amount at 105.250% of face value with proceeds from certain equity issuances through January 15, 2020. The 2025 Notes are unsecured and guaranteed by all of our consolidated subsidiaries, except Tesoro Logistics Finance Corp., the co-issuer, and are non-recourse to Marathon, except for TLGP, and contain customary terms, events of default and covenants for an issuance of non-investment grade securities.

4.250% Senior Notes Due 2027

In November 2017, we issued $750 million aggregate principal amount of senior notes due in 2027 (the “2027 Notes”) at 4.250%, which approximates the effective interest rate. The proceeds from the 2027 Notes were used to repay a portion of our 5.875% senior notes due in 2020 and 6.125% senior notes due in 2021, as well as borrowings under the Dropdown Credit Facility.

The 2027 Notes will mature on December 1, 2027 and have no sinking fund requirement. The 2027 Notes may be redeemable in whole at any time or in part from time to time, at our option, prior to September 1, 2027. We may redeem the 2027 Notes at a redemption price equal to the greater of 100% of the principal amount or the sum of the present value of the remaining scheduled principal and interest payments as defined in the prospectus supplement. The 2027 Notes are unsecured and guaranteed by all of our consolidated subsidiaries, with the exception of Tesoro Logistics Finance Corp., the co-issuer, and are non-recourse to Marathon, except for TLGP, and contain customary terms, events of default and covenants for an issuance of investment grade securities.

5.200% Senior Notes Due 2047

In November 2017, we issued $500 million aggregate principal amount of senior notes due in 2047 (the “2047 Notes”) at 5.200%, which approximates the effective interest rate. The proceeds from the 2047 Notes were used to repay a portion of our 5.875% senior notes due in 2020 and 6.125% senior notes due in 2021, as well as borrowings under the Dropdown Credit Facility.

The 2047 Notes will mature on December 1, 2047 and have no sinking fund requirements. The 2047 Notes may be redeemable in whole at any time or in part from time to time, at our option, prior to June 1, 2047. We may redeem the 2047 Notes at a redemption price equal to the greater of 100% of the principal amount or the sum of the present value of the remaining scheduled principal and interest payments as defined in the prospectus supplement. The 2047 Notes are unsecured and guaranteed by all of our consolidated subsidiaries, with the exception of Tesoro Logistics Finance Corp., the co-issuer, and are non-recourse to Marathon, except for TLGP, and contain customary terms, events of default and covenants for an issuance of investment grade securities.

Capital Lease Obligations

Our capital lease obligations relate to two leases of facilities used for trucking operations in North Dakota with initial terms of 15 years, with five-year renewal options, leases of vehicles and equipment and a right of way with an initial term of 31 years. The total cost of assets under capital leases was $18 million and $11 million at December 31, 2018 and 2017, respectively, and accumulated amortization was $4 million and $3 million at December 31, 2018 and 2017, respectively. We include the amortization of the cost of assets under capital leases in depreciation and amortization expenses in our consolidated statements of operations.

Future Minimum Annual Lease Payments, Including Interest for Capital Leases (in millions)



	December 31, 2018
2019	$	4
2020	3
2021	3
2022	2
2023	2
Thereafter	4
Total minimum lease payments	18
Less amount representing interest	(3		)
Capital lease obligations	$	15