Debt

Debt outstanding was as follows (in millions):



	Successor
	December 31, 2012 ^a					December 31, 2011 ^a
Notes and debentures, due 2013 to 2097	$	12,600		5.4	%	$	10,406		5.8	%
Equipment obligations, due 2013 to 2027	153			5.9		183			6.0
Capitalized lease obligations, due 2013 to 2028	971			6.0		1,140			5.9
Mortgage bonds, due 2013 to 2047	85			4.7		88			4.9
Financing obligations, due 2013 to 2028	296			6.2		310			6.2
Unamortized fair value adjustment under acquisition method accounting, discount and other, net	428					538
Total	14,533					12,665
Less current portion of long-term debt	(453		)	5.1	%	(526		)	5.9	%
Long-term debt	$	14,080				$	12,139

^aAmounts represent debt outstanding and weighted average effective interest rates for 2012 and 2011, respectively. Maturities are as of December 31, 2012.

There were no outstanding interest rate hedges at December 31, 2012 and 2011.

As of December 31, 2012, certain BNSF Railway properties and other assets were subject to liens securing $85 million of mortgage debt. Certain locomotives and rolling stock of BNSF Railway were subject to equipment obligations and capital leases.

The Company is required to maintain certain financial covenants in conjunction with $500 million of certain issued and outstanding junior subordinated notes. As of December 31, 2012, the Company was in compliance with these covenants. In the event of non-compliance, the Company would be required to pay any accrued and unpaid interest.

The fair value of BNSF’s long-term debt is primarily based on market value price models using observable market-based data for the same or similar issues, or on the estimated rates that would be offered to BNSF for debt of the same remaining maturities (Level 2 inputs). Capital leases, interest rate hedges and unamortized gains on interest rate swaps have been excluded from the calculation of fair value for both 2012 and 2011.

The following table provides fair value information for the Company’s debt obligations including principal cash flows, related weighted average interest rates by contractual maturity dates and fair value. The Company had no outstanding variable rate debt at December 31, 2012.



	December 31, 2012 (Successor)
	Maturity Date																		Total Including Capital Leases			Total Excluding Capital Leases ^a,b		Fair Value Excluding Capital Leases ^b
	2013			2014			2015			2016			2017			Thereafter			Total Including Capital Leases			Total Excluding Capital Leases ^a,b		Fair Value Excluding Capital Leases ^b
Fixed-rate debt (in millions)	$	453		$	646		$	365		$	373		$	717		$	11,979		$	14,533		$	13,455	$	15,291
Average interest rate	5.1		%	6.8		%	5.2		%	6.6		%	5.7		%	5.4		%	5.5		%

^a Amount also excludes unamortized fair value adjustment under acquisition method accounting related to capital leases.

^b Amount also excludes unamortized gains on interest rate swaps.

As of December 31, 2011, the fair value excluding capital leases and unamortized gains on interest rate swaps of fixed-rate debt was $12,947 million.

Notes and Debentures

2012

In August 2012, BNSF issued $600 million of 3.050 percent debentures due September 1, 2022 and $650 million of 4.375 percent debentures due September 1, 2042. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness and distributions.

In July and January 2012, the Board of Managers (the Board) of the Company authorized an additional $1 billion and $1.5 billion, respectively, of debt securities that may be issued pursuant to the debt shelf registration statement filed with the Securities and Exchange Commission (SEC). As of December 31, 2012, $750 million remained authorized by the Board to be issued through the SEC debt shelf registration process.

In March 2012, BNSF issued $625 million of 3.05 percent debentures due March 15, 2022 and $625 million of 4.40 percent debentures due March 15, 2042. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness and distributions.

2011

In August 2011, BNSF issued $450 million of 3.45 percent debentures due September 15, 2021 and $300 million of 4.95 percent debentures due September 15, 2041. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness and distributions.

In May 2011, BNSF issued $250 million of 4.10 percent debentures due June 1, 2021 and $500 million of 5.40 percent debentures due June 1, 2041. The net proceeds from the sale of the debentures were used for general corporate purposes, which may include but are not limited to working capital, capital expenditures, repayment of outstanding indebtedness and distributions.

2010

In September 2010, BNSF issued $250 million of 3.60 percent debentures due September 1, 2020 and $500 million of 5.05 percent debentures due March 1, 2041. The net proceeds from the sale of the debentures were used for general corporate purposes, including but not limited to, working capital, capital expenditures and repayment of outstanding indebtedness.

In May 2010, BNSF issued $750 million of 5.75 percent debentures due May 1, 2040. The net proceeds from the sale of the debentures were used for general corporate purposes, including but not limited to, working capital, capital expenditures and repayment of outstanding indebtedness.

Capital Leases

2012

BNSF Railway did not enter into any material capital leases during 2012.

2011

BNSF Railway did not enter into any material capital leases during 2011.

2010

During the periods February 13 – December 31, 2010 (Successor), and January 1 – February 12, 2010 (Predecessor), BNSF Railway entered into capital leases totaling $40 million and $8 million, respectively to finance maintenance of way and other vehicles and equipment with lease terms of five to seven years.

Guarantees

As of December 31, 2012, BNSF has not been called upon to perform under the guarantees specifically disclosed in this footnote and does not anticipate a significant performance risk in the foreseeable future.

Debt and other obligations of non-consolidated entities guaranteed by the Company as of December 31, 2012, were as follows (dollars in millions):



	Guarantees
	BNSF Ownership Percentage		Principal Amount Guaranteed			Maximum Future Payments			Maximum Recourse Amount		^a	Remaining Term (in years)	Capitalized Obligations
Kinder Morgan Energy Partners, L.P.	0.5	%	$	190		$	190		$	—		Termination of Ownership	$	2	^b
Chevron Phillips Chemical Company LP	—	%	N/A		^d	N/A		^d	N/A		^d	5	$	8	^c
All other	—	%	$	9		$	14		$	—		Various	$	—

^a Reflects the maximum amount the Company could recover from a third party other than the counterparty.

^b Reflects capitalized obligations that are recorded on the Company’s Consolidated Balance Sheet.

^c Reflects the asset and corresponding liability for the fair value of these guarantees required by authoritative accounting guidance related to guarantees.

^d There is no cap to the liability that can be sought from BNSF for BNSF’s negligence or the negligence of the indemnified party. However, BNSF could receive reimbursement from certain insurance policies if the liability exceeds a certain amount.

Kinder Morgan Energy Partners, L.P.

Santa Fe Pacific Pipelines, Inc., an indirect, wholly-owned subsidiary of BNSF, has a guarantee in connection with its remaining special limited partnership interest in Santa Fe Pacific Pipeline Partners, L.P. (SFPP), a subsidiary of Kinder Morgan Energy Partners, L.P., to be paid only upon default by the partnership. All obligations with respect to the guarantee will cease upon termination of ownership rights, which would occur upon a put notice issued by BNSF or the exercise of the call rights by the general partners of SFPP.

Chevron Phillips Chemical Company LP

In the third quarter of 2007, BNSF entered into an indemnity agreement with Chevron Phillips Chemical Company LP (Chevron Phillips), granting certain rights of indemnity from BNSF, in order to facilitate access to a new storage facility. Under certain circumstances, payment under this obligation may be required in the event Chevron Phillips were to incur certain liabilities or other incremental costs resulting from trackage access.

All Other

As of December 31, 2012, BNSF guaranteed $9 million of debt. These guarantees expire between 2013 and 2026.

Indemnities

In the ordinary course of business, BNSF enters into agreements with third parties that include indemnification clauses. The Company believes that these clauses are generally customary for the types of agreements in which they are included. At times, these clauses may involve indemnification for the acts of the Company, its employees and agents, indemnification for another party’s acts, indemnification for future events, indemnification based upon a certain standard of performance, indemnification for liabilities arising out of the Company’s use of leased equipment or other property, or other types of indemnification. Despite the uncertainty whether events which would trigger the indemnification obligations would ever occur, the Company does not believe that these indemnity agreements will have a material adverse effect on the Company’s results of operations, financial position or liquidity. Additionally, the Company believes that, due to lack of historical payment experience, the fair value of indemnities cannot be estimated with any amount of certainty. However, the fair value of any such amount would be immaterial to the Consolidated Financial Statements. Agreements that contain unique circumstances, particularly agreements that contain guarantees that indemnify for another party’s acts are disclosed separately if appropriate. Unless separately disclosed above, no fair value liability related to indemnities has been recorded in the Consolidated Financial Statements.

Variable Interest Entities - Leases

BNSF Railway has entered into various equipment lease transactions in which the structure of the lease contains VIEs. These VIEs were created solely for the lease transactions and have no other activities, assets or liabilities outside of the lease transactions. In some of the arrangements, BNSF Railway has the option to purchase some or all of the equipment at a fixed-price, thereby creating variable interests for BNSF Railway in the VIEs. The future minimum lease payments associated with the VIE leases were approximately $4 billion as of December 31, 2012. The future minimum lease payments are included in future operating lease payments disclosed in Note 14.

In the event the leased equipment is destroyed, BNSF Railway is obligated to either replace the equipment or pay a fixed loss amount. The inclusion of the fixed loss amount is a standard clause within equipment lease arrangements. Historically, BNSF Railway has not incurred significant losses related to this clause. As such, it is not anticipated that the maximum exposure to loss would materially differ from the future minimum lease payments.

BNSF Railway does not provide financial support to the VIEs that it was not previously contractually obligated to provide.

BNSF Railway maintains and operates the equipment based on contractual obligations within the lease arrangements, which set specific guidelines consistent within the industry. As such, BNSF Railway has no control over activities that could materially impact the fair value of the leased equipment. BNSF Railway does not hold the power to direct the activities of the VIEs and therefore does not control the ongoing activities that have a significant impact on the economic performance of the VIEs. Additionally, BNSF Railway does not have the obligation to absorb losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs. Depending on market conditions, the fixed-price purchase options could potentially provide benefit to the Company; however, any benefits potentially received from a fixed-price purchase option are expected to be minimal. Based on these factors, BNSF Railway is not the primary beneficiary of the VIEs. As BNSF Railway is not the primary beneficiary and the VIE leases are classified as operating leases, there are no assets or liabilities related to the VIEs recorded in the Company's Consolidated Balance Sheet.