Note 8. Debt

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


	June 30, 2017				December 31, 2016
	Carrying		Interest		Carrying		Interest
	Amount		Rate		Amount		Rate
Notes payable	$	4,149	—		$	6,390	—
Short-term borrowing-Comerica Bank		20,000	3.80	%		23,800	3.37	%
Total notes payable and short-term borrowing	$	24,149			$	30,190
Long-term debt, current and non-current:
Mitsubishi Bank loans	$	16,723	1.43	%	$	11,253	1.43	%
Unaccreted discount and issuance costs within current portion of long-term debt		(120)				(108)
Unaccreted discount and issuance costs within long-term debt, net of current portion		(335)				(183)
Total long-term debt, net of unaccreted discount and issuance costs	$	16,268			$	10,962

Reported as:
Current portion of long-term debt	$	5,458			$	747
Long-term debt, net of current portion		10,810				10,215
Total long-term debt, net of unaccreted discount and issuance costs	$	16,268			$	10,962

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. As of June 30, 2017, the Company’s subsidiary in China had three short-term line of credit facilities with banking institutions:

Under the first line of credit facility, the Company can borrow up to RMB 120.0 million ($17.7 million) for short-term loans at varying interest rates, or up to approximately RMB 171.4 million ($25.3 million) for bank acceptance drafts (with a 30% compensating balance requirement). This line of credit facility expires in July 2019.

Under the second line of credit facility, which expires in September 2017, the Company can borrow up to RMB 266.0 million (approximately $39.2 million) for short-term loans at varying interest rates or up to approximately RMB 380.0 million (approximately $56.1 million) for bank acceptance drafts (with a 30% compensating balance requirement).

Under the third line of credit facility, which expires in July 2019, the Company can borrow up to RMB 30.0 million ($4.4 million) for short-term loans at varying interest rates, or up to approximately RMB 42.9 million ($6.3 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 $4.1 million and $6.4 million as of June 30, 2017 and December 31, 2016, respectively. In addition to the outstanding notes payable, three letters of credit totaling $1.6 million were issued to its suppliers in 2016 for equipment purchases delivered by December 2016. These letters of credit require a 30% compensating balance. As of December 31, 2016, the outstanding balance of these letters of credit was immaterial and was fully repaid as of June 30, 2017.

As of June 30, 2017 and December 31, 2016, compensating balances relating to these bank acceptance drafts and letters of credit issued to suppliers and the Company’s subsidiaries totaled $1.2 million and $2.1 million, respectively. Compensating balances are classified as restricted cash on the Company’s condensed consolidated balance sheets.

Short-Term Borrowing

The Company has a credit agreement, as amended, with Comerica Bank as lead bank in the U.S. (the “Comerica Bank Credit Facility”) with a borrowing capacity of up to $30.0 million. In January 2017, the Company amended the Comerica Bank Credit Facility to extend the maturity to April 30, 2017 and to remove the covenant related to EBITDA. In April 2017, the Company amended the Comerica Bank Credit Facility to extend the maturity date to July 31, 2017 and to add a financial covenant that required maintenance of a modified EBITDA. In June 2017, the Company amended the Comerica Bank Credit Facility to extend the maturity to August 31, 2017, to allow NeoPhotonics China to borrow up to $17.0 million, to limit the indebtedness under the facility to $20.0 million and to modify the EBITDA requirement. As of June 30, 2017 and December 31, 2016, the Company was in compliance with the covenants of the credit facility except for exceeding the capital expenditure limit as of December 31, 2016 for which a waiver was obtained subsequent to the year end.

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. As of June 30, 2017 and December 31, 2016, the rate on the LIBOR option was 3.80% and 3.37%, respectively, and the outstanding balance was $20.0 million and $23.8 million, respectively.

Long-Term Debt

On February 25, 2015, the Company entered into certain loan agreements and related 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 the Company’s Japanese subsidiary. 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. Outstanding principal balance under the Mitsubishi Bank Loans and unamortized debt issuance costs were approximately 1.2 billion JPY (approximately $11.1 million) and 50.0 million JPY (approximately $0.5 million), respectively, as of June 30, 2017. The Company was in compliance with the related covenants as of June 30, 2017 and December 31, 2016.

In March 2017, the Company entered into a loan agreement and related agreements with the Mitsubishi Bank for a term loan of 690 million JPY (approximately $6.2 million) (the “2017 Mitsubishi Bank Loan”) to acquire manufacturing equipment for its Japanese subsidiary. This loan is secured by the manufacturing equipment acquired from the loan proceeds. Interest on the 2017 Mitsubishi Bank Loan is based on the annual rate of the monthly TIBOR rate plus 1.00%. The 2017 Mitsubishi Bank Loan matures on March 29, 2024 and requires monthly interest and principal payments over 72 months commencing in April 2018. The loan contains customary covenants relating to minimum net assets, maximum ordinary loss and a dividends covenant. The loan is available from March 31, 2017 to March 30, 2018 and 625.3 million JPY (approximately $5.6 million) under this loan was drawn as of June 30, 2017.

At June 30, 2017, maturities of total long-term debt were as follows (in thousands):


2017 (remaining six months)	$	446
2018		6,030
2019		1,796
2020		1,796
2021		1,796
Thereafter		4,859
	$	16,723