Note 8. Debt

The table below summarizes the carrying amount and weighted average interest rate of the Company’s debt (in thousands, except percentages):


	September 30, 2016				December 31, 2015
	Carrying		Interest		Carrying		Interest
	Amount		Rate		Amount		Rate
Notes payable	$	7,708	—		$	8,857	—
Bank borrowings-Comerica Bank		23,800	3.28	%		23,800	2.99	%
Total notes payable and short-term borrowing	$	31,508			$	32,657
Long-term debt, current and non-current:
Bank borrowings-Mitsubishi Bank	$	13,258	1.43	%	$	11,769	1.53	%
Total long-term debt, current and non-current	$	13,258			$	11,769
Unaccreted discount within current portion of long-term debt		(80)				(71)
Unaccreted discount within long-term debt, net of current portion		(154)				(179)
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519

Reported as:
Current portion of long-term debt	$	908			$	760
Long-term debt, net of current portion		12,116				10,759
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519

Notes payable

The Company regularly issues notes payable to its suppliers in China. These notes are supported by non-interest bearing bank acceptance drafts issued under the Company’s existing line of credit facilities and are due three to six months after issuance. As a condition of the notes payable arrangements, the Company is required to keep a compensating balance at the issuing banks that is a percentage of the total notes payable balance until the amounts are settled.

In July 2016, the Company’s China subsidiary renewed its short-term line of credit facility with a banking institution that expired in June 2016. Under the agreement, the Company could borrow up to RMB 120.0 million ($18.0 million) for short-term loans, which bear interest at varying rates, or up to approximately RMB 171.4 million ($25.8 million) for bank acceptance drafts (with a 30% compensating balance requirement). This short-term line of credit facility was renewed in August 2016 and will expire in July 2019. In September 2015, the Company’s China subsidiary renewed its second short-term line of credit facility with a banking institution, under which the Company can borrow up to RMB 133.0 million ($19.9 million) for short-term loan, which bore interest at varying rates, or up to approximately RMB 190.0 million ($28.5 million) for bank acceptance drafts (with a 30% compensating balance requirement). This line of credit facility expired on September 30, 2016 and was renewed in October 2016. Under the renewed credit line, which will expire in September 2017, the Company can borrow up to RMB 266.0 million (approximately $39.9 million) for short-term loans at varying interest rates or up to approximately RMB 380.0 million (approximately $57.0 million) for bank acceptance drafts (with a 30% compensating balance requirement).

In August 2016, the Company’s China subsidiary entered into a third line of credit facility with a banking institution that expires in July 2019. Under this line of credit, the Company can borrow up to RMB 30.0 million ($4.5 million) for short-term loans, which bear interest at varying rates, or up to approximately RMB 42.9 million ($6.4 million) for bank acceptance drafts (with a 30% compensating balance requirement).

Under these line of credit facilities, the non-interest bearing bank acceptance drafts issued in connection with the Company’s notes payable to its suppliers in China, had an outstanding balance of $7.7 million and $8.9 million as of September 30, 2016 and December 31, 2015, respectively. In addition to the outstanding notes payable, two letters of credit totaling $1.3 million to its suppliers were issued in August 2016 and September 2016 for future equipment purchases that are expected to be delivered by December 2016. These letters of credit require a 30% compensating balance requirement.

As of September 30, 2016 and December 31, 2015, compensating balances relating to these bank acceptance drafts and letters of credit issued to suppliers and the Company’s subsidiaries totaled $2.8 million and $2.7 million, respectively. Compensating balances are classified as restricted cash on the Company’s condensed consolidated balance sheets.

Short-term borrowing

In April 2015, the Company repaid the interest and principal of its $5.0 million short-term advance financing agreement, dated October 2014, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at 4.02% per annum.

In May 2015, the Company repaid the interest and principal of its second $5.0 million short-term advance financing agreement, dated November 2014, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at 2.33% per annum and service fees at 1.00% per annum.

In September 2015, the Company repaid the interest and principal of its $5.0 million advance financing agreement, dated April 2015, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at a six-month LIBOR plus 330 basis points, or approximately 3.71% per annum.

Acquisition-related

In connection with the purchase consideration to acquire the tunable laser products of EMCORE in January 2015 (See Note 5), the Company issued the EMCORE Note, as amended, of $15.5 million, which had a maturity of two years from the closing of the transaction and an interest rate of 5% per annum for the first year and 13% per annum for the second year. The interest was payable semi-annually in cash. The EMCORE Note was subordinated to the Company’s existing bank debt in the U.S. and was repaid in full in April 2015.

Bank borrowings

The Company has a credit agreement with Comerica Bank as lead bank in the U.S. (the “Comerica Bank Credit Facility”). The Comerica Bank Credit Facility requires the maintenance of a modified EBITDA and certain liquidity covenants. The credit agreement also restricts the Company’s ability to incur certain additional debt or to engage in specified transactions, restricts the payment of dividends and is secured by substantially all of the Company’s U.S. assets, other than intellectual property assets.

The Company amended the Comerica Bank Credit Facility in January 2015 to modify the EBITDA and liquidity covenants and eliminate the need to maintain compensating balances (restricted cash). In March 2015, the Company further amended the Comerica Bank Credit Facility to increase borrowing capacity to $30.0 million.

In September 2016, the Company amended the Comerica Bank Credit Facility to increase the limitation on the Company’s capital expenditures to $62.0 million for fiscal year 2016 and to provide for an extension of the maturity date to January 31, 2017. As of each of September 30, 2016 and December 31, 2015, the Company was in compliance with the covenants of the credit facility.

Borrowings under the Comerica Bank Credit Facility bear interest at an interest rate option of a base rate as defined in the agreement plus 1.75% or LIBOR plus 2.75%. Base rate is based on the greater of (a) the effective prime rate, (b) the Federal Funds effective rate plus one percent, and (c) the daily adjusting LIBOR rate plus one percent. Amounts borrowed, if any, are due on or before January 31, 2017. As of September 30, 2016, the rate on the LIBOR option was 3.28%. As of each of September 30, 2016 and December 31, 2015, there was $23.8 million outstanding. On February 25, 2015, the Company entered into certain loan agreements and related special agreements with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Mitsubishi Bank”) that provided for (i) a term loan in the aggregate principal amount of 500 million JPY ($4.2 million) (the “Term Loan A”) and (ii) a term loan in the aggregate principal amount of one billion JPY ($8.4 million) (the “Term Loan B” and together with the Term Loan A, the “Mitsubishi Bank Loans”). The Mitsubishi Bank Loans are secured by a mortgage on certain real property and buildings owned by our Japanese subsidiary. The full amount of each of the Mitsubishi Bank Loans was drawn on the closing date of February 25, 2015. Interest on the Mitsubishi Bank Loans accrues and is paid monthly based upon the annual rate of the monthly Tokyo Interbank Offer Rate (TIBOR) plus 1.40%. The Term Loan A requires interest only payments until the maturity date of February 23, 2018, with a lump sum payment of the aggregate principal amount on the maturity date. The Term Loan B requires equal monthly payments of principal equal to 8,333,000 JPY until the maturity date of February 25, 2025, with a lump sum payment of the balance of 8,373,000 JPY on the maturity date. Interest on the Term Loan B is accrued based upon monthly TIBOR plus 1.40% and is secured by real estate collateral. In conjunction with the execution of the Bank Loans, the Company paid a loan structuring fee, including consumption tax, of 40,500,000 JPY ($0.3 million).

The Mitsubishi Bank Loans contain customary representations and warranties and customary affirmative and negative covenants applicable to the Company’s Japanese subsidiary, including, among other things, restrictions on cessation in business, management, mergers or acquisitions. The Mitsubishi Bank Loans contain financial covenants relating to minimum net assets, maximum ordinary loss and a dividends covenant. The Mitsubishi Bank Loans also include customary events of default, including but not limited to the nonpayment of principal or interest, violations of covenants, restraint on business, dissolution, bankruptcy, attachment and misrepresentations. In February 2015, the Company used a portion of the proceeds of the Mitsubishi Bank Loans to repay the then-outstanding loan related to the acquisition of NeoPhotonics Semiconductor, which had an outstanding principal and interest amount of approximately 710 million JPY ($6.0 million) and the remaining proceeds will be used for general working capital. Outstanding principal balance under the Mitsubishi Bank Loans was approximately 1.3 billion JPY (approximately $13.3 million), net of unamortized debt issuance costs of 23.7 million JPY (approximately $0.2 million), as of September 30, 2016 and 1.4 billion JPY (approximately $11.5 million), net of unamortized debt issuance costs of 30.1 million JPY (approximately $0.3 million) as of December 31, 2015. The Company was in compliance with the related covenants.

At September 30, 2016, maturities of long-term debt were as follows (in thousands):


2016 (remaining three months)	$	247
2017		988
2018		5,929
2019		988
2020		988
Thereafter		4,118
	$	13,258