Debt

Debt outstanding was as follows (in millions):



	December 31, 2018 ^a					December 31, 2017 ^a
Notes and debentures, due 2019 to 2097	$	22,094		4.7	%	$	21,245		4.8	%
Equipment obligations, due 2019 to 2028	470			3.6		493			3.6
Capitalized lease obligations, due 2019 to 2029	419			6.1		466			6.1
Mortgage bonds, due 2020 to 2047	81			4.5		81			4.5
Financing obligations, due 2019 to 2029	195			6.1		211			6.3
Unamortized fair value adjustment under acquisition method accounting, discount, debt issuance costs, and other, net	(33		)			3
Total	23,226					22,499
Less current portion of long-term debt	(830		)	4.8	%	(740		)	5.7	%
Long-term debt	$	22,396				$	21,759

^aAmounts represent debt outstanding and weighted average effective interest rates for 2018 and 2017, respectively. Maturities are as of December 31, 2018.

As of December 31, 2018, 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, 2018, the Company was in compliance with these financial covenants.

The fair value of BNSF’s 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 2018 and 2017.

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, 2018.



	December 31, 2018
	Maturity Date						Total Including Capital Leases	Total Excluding Capital Leases ^a	Fair Value Excluding Capital Leases
	2019	2020	2021	2022	2023	Thereafter	Total Including Capital Leases	Total Excluding Capital Leases ^a	Fair Value Excluding Capital Leases
Fixed-rate debt (in millions)	$830	$572	$918	$1,558	$1,553	$17,795	$23,226	$22,807	$24,089
Average interest rate	4.8%	5.6%	4.3%	4.1%	3.5%	4.8%	4.7%

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

As of December 31, 2017, the fair value of fixed-rate debt excluding capital leases was $25.1 billion.

Notes and Debentures

2018

In August 2018, BNSF issued $750 million of 4.15 percent debentures due December 15, 2048, and in March 2018, BNSF issued $750 million of 4.05 percent debentures due June 15, 2048. 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.

As of December 31, 2018, $250 million remained authorized by the Board of Managers (the Board) of the Company to be issued through the Securities and Exchange Commission (SEC) debt shelf offering process.

2017

In March 2017, the Board authorized an additional $1.5 billion of debt securities that may be issued pursuant to the debt shelf registration statement filed with the SEC.

In March 2017, BNSF issued $500 million of 3.25 percent debentures due June 15, 2027 and $750 million of 4.125 percent debentures due June 15, 2047. The net proceeds from the sale of the debentures were used for general corporate purposes.

2016

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.

Capital Leases

There were no additions to capital leases in 2018. In 2017 and 2016, additions to capital leases were not material.

Guarantees

As of December 31, 2018, 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, 2018, 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	9	$	18	^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 Sheets.

^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. 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 $1.5 billion as of December 31, 2018. The future minimum lease payments are included in future operating lease payments disclosed in Note 13 to the Consolidated Financial Statements.

In the event the leased asset is destroyed, BNSF Railway is generally 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 generally 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 Sheets are immaterial.