filings.toolsItem 7A. Quantitative and Qualitative Disclosures About Market Risk.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. Our primary market risk exposure is to changes in interest rates on our borrowings. As of December 31, 2018, 28.6% of our total capitalization consisted of borrowings. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for borrowings through the use of fixed rate debt instruments and interest rate swaps, which mitigate our interest rate risk on a related financial instrument and effectively fix the interest rate on a portion of our variable debt or on future refinancings. We use our best efforts to have our debt instruments mature across multiple years, which we believe limits our exposure to interest rate changes in any one year. We do not
enter into derivative instruments for trading or other speculative purposes. As of December 31, 2018, 74.8% of our outstanding debt was subject to fixed rates after considering related derivative instruments. We regularly review interest rate exposure on outstanding borrowings in an effort to minimize the risk of interest rate fluctuations.
The table below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For our interest rate swaps, the table presents the notional amount of the swaps and the years in which they expire. Weighted average variable rates are based on rates in effect as of December 31, 2018 (dollars in thousands).
| 2019 | 2020 | 2021 | 2022 | 2023 | Total Thereafter | Total | Fair Value Liability | ||||||||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||||||||||
| Fixed rate | $ | 40,446 | $ | 158,281 | $ | 192,903 | $ | 368,401 | $ | 363,731 | $ | 1,994,399 | $ | 3,118,161 | $ | 3,066,546 | |||||||||||||||
| Average interest rate | 4.40 | % | 4.80 | % | 5.20 | % | 3.64 | % | 4.35 | % | 3.91 | % | 4.06 | % | |||||||||||||||||
| Variable rate (1) | $ | 300,000 | $ | 690,000 | $ | 150,000 | $ | — | $ | — | $ | — | $ | 1,140,000 | $ | 1,143,795 | |||||||||||||||
| Average interest rate | 3.36 | % | 3.38 | % | 3.30 | % | — | % | — | % | — | % | 3.36 | % | |||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||
| Variable to fixed | $ | — | $ | 300,000 | $ | — | $ | — | $ | — | $ | 300,000 | (2) | $ | 600,000 | $ | 1,623 | ||||||||||||||
| Average pay rate | — | % | 2.32 | % | — | % | — | % | — | % | 2.91 | % | 2.62 | % |
(1) Excluding the effect of interest rate swap agreements.
(2) Includes six forward rate swaps totaling $300.0 million, which hedge the first 10 years of interest payments on debt we anticipate issuing in 2019.
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