Debt

Debt outstanding was as follows (in millions):



	December 31, 2016 ^a					December 31, 2015 ^a
Notes and debentures, due 2017 to 2097	$	20,651		4.8	%	$	20,082		4.9	%
Equipment obligations, due 2017 to 2028	516			3.6		564			3.7
Capitalized lease obligations, due 2017 to 2029	512			6.1		660			6.1
Mortgage bonds, due 2020 to 2047	81			4.5		81			4.5
Financing obligations, due 2017 to 2028	226			6.3		237			6.3
Unamortized fair value adjustment under acquisition method accounting, discount and other, net	58					113
Total	22,044					21,737
Less current portion of long-term debt	(735		)	5.6	%	(389		)	6.4	%
Long-term debt	$	21,309				$	21,348

^aAmounts represent debt outstanding and weighted average effective interest rates for 2016 and 2015, respectively. Maturities are as of December 31, 2016.

As of December 31, 2016, certain BNSF Railway properties and other assets were subject to liens securing $81 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, 2016, 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 and unamortized gains on interest rate swaps have been excluded from the calculation of fair value for both 2016 and 2015.

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, 2016.



	December 31, 2016
	Maturity Date						Total Including Capital Leases	Total Excluding Capital Leases ^a,b	Fair Value Excluding Capital Leases ^b
	2017	2018	2019	2020	2021	Thereafter	Total Including Capital Leases	Total Excluding Capital Leases ^a,b	Fair Value Excluding Capital Leases ^b
Fixed-rate debt (in millions)	$735	$739	$836	$570	$918	$18,246	$22,044	$21,509	$23,618
Average interest rate	5.6%	5.7%	4.8%	5.7%	4.3%	4.8%	4.8%

^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, 2015, the fair value of fixed-rate debt excluding capital leases and unamortized gains on interest rate swaps was $21,996 million.

Notes and Debentures

2016

BNSF filed a new automatic shelf registration with the Securities and Exchange Commission for the issuance of debt

securities which became effective on May 9, 2016. The automatic shelf registration will remain effective for three years. As of

December 31, 2016, $1.5 billion remained authorized by the Board of Managers (the Board) of the Company to be issued through the SEC debt shelf offering process.

In May 2016, BNSF issued $750 million of 3.9 percent debentures due August 1, 2046. 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.

2015

In August 2015, BNSF issued $350 million of 3.65 percent debentures due September 1, 2025 and $650 million of 4.7 percent debentures due September 1, 2045. The net proceeds from the sale of the debentures were used for general corporate purposes.

In March 2015, BNSF issued $500 million of 3.0 percent debentures due April 1, 2025 and $1 billion of 4.15 percent debentures due April 1, 2045. The net proceeds from the sale of the debentures were used for general corporate purposes.

2014

In August 2014, BNSF issued $700 million of 3.4 percent debentures due September 1, 2024 and $800 million of 4.55 percent debentures due September 1, 2044. The net proceeds from the sale of the debentures were used for general corporate purposes.

In March 2014, BNSF issued $500 million of 3.75 percent debentures due April 1, 2024 and $1 billion of 4.9 percent debentures due April 1, 2044. The net proceeds from the sale of the debentures were used for general corporate purposes.

Equipment Obligation

In June 2015, BNSF Railway entered into a 13-year equipment obligation totaling $500 million at 3.442 percent.

Capital Leases

In 2016, additions to capital leases were not material. There were no additions to capital leases in 2015. In 2014, additions to capital leases were not material.

Guarantees

As of December 31, 2016, 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, 2016, 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	11	$	22	^c

^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

BNSF has 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 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.

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 and that the fair value of any such amount would be immaterial to the Consolidated Financial Statements. Agreements that reflect 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 lease transactions in which the structure of the lease contains VIEs. These leases are primarily for equipment. 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 leased assets 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 $2 billion as of December 31, 2016. The future minimum lease payments are included in future operating lease payments disclosed in Note 12.

In the event the leased asset is destroyed, BNSF Railway is obligated to either replace the asset or pay a fixed loss amount. The inclusion of the fixed loss amount is a standard clause within the 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 leased assets 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 assets. 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 majority of the VIE leases are operating leases, the assets and liabilities related to the VIEs recorded in the Company's Consolidated Balance Sheet are immaterial.