Note 8. Debt

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

	March 31, 2014						December 31, 2013
	Carrying Amount			Weighted Average Interest Rate			Carrying Amount		Weighted Average Interest Rate
Notes payable	$	11,210				$	9,738		—
Long-term debt:
Acquisition-related	$	6,790		1.50	%	$	9,975		1.50	%
Bank borrowings		22,750		3.15	%		24,500		2.92	%
		29,540					34,475
Less: current portion of long-term debt		(10,395	)				(10,325	)
Total long-term debt, net of current portion	$	19,145				$	24,150

Notes payable

The Company regularly issues notes payable to its suppliers in China in exchange for accounts payable. These notes are supported by noninterest bearing bank acceptance drafts 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. These balances are classified as restricted cash on the Company’s consolidated balance sheets. As of March 31, 2014 and December 31, 2013, restricted cash totaled $3.0 million and $2.1 million, respectively. In May 2014, one of the Company’s subsidiaries in China issued a 90-day bank acceptance draft of $8.0 million to another of the Company’s subsidiaries that required a compensating balance of $2.4 million. This bank acceptance draft can be sold for cash at a discount prior to its expiration.

At March 31, 2014, the Company’s subsidiaries in China had two short-term line of credit facilities with banking institutions, both of which subsequently expired. In June 2014, one of the credit facilities was renewed. Under the renewed agreement, which expires in June 2015, the Company’s subsidiaries in China have a short-term line of credit of RMB 160.0 million ($25.7 million) of which the full amount can be used for bank acceptance drafts (with a 25% compensating balance requirement) and up to RMB 120.0 million ($19.3 million) can be used for short-term loans, which will bear interest at varying rates depending upon the term. The second credit facility is in the process of being renewed.

Acquisition-related

In connection with the acquisition of NeoPhotonics Semiconductor on March 29, 2013, the Company was obligated to pay 1,050 million Japanese Yen in three equal installments on the first, second and third anniversaries of the closing date for the purchase of the real estate used by NeoPhotonics Semiconductor, of which 700 million Japanese Yen ($6.8 million) was outstanding at March 31, 2014. The obligation bears interest at 1.5% per year, payable annually, and is secured by the acquired real estate property.

Bank borrowings

The Company has a credit agreement with Comerica Bank as lead bank in the U.S., which has been amended several times. The components of the available credit facilities are as follows:

—

A revolving credit facility under which there was nothing outstanding at March 31, 2014 or December 31, 2013 and $20.0 million was available for borrowing at March 31, 2014, subject to covenant requirements. Amounts borrowed are due on or before March 2016 and borrowings bear interest at an interest rate option of a base rate as defined in the agreement plus 1.75% or LIBOR plus 2.75%. As of March 31, 2014 the rate on the LIBOR option was 2.90%.

—

A term loan facility of $28.0 million, under which $22.8 million and $24.5 million was outstanding at March 31, 2014 and December 31, 2013, respectively. Interest is payable quarterly in arrears and the principal is paid in equal quarterly installments over the term of the loan ending in June 2017. Borrowings under the term loan bear interest at an interest rate option of a base rate as defined in the agreement plus 2.0% or LIBOR plus 3.0%. As of March 31, 2014 the rate on the LIBOR option was 3.15%.

The Company’s credit agreement requires the maintenance of specified financial covenants, including a debt to EBITDA ratio and liquidity ratios. The 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 its U.S. assets, other than intellectual property assets. The Company was not in compliance with the debt to EBITDA covenant at March 31, 2014, which noncompliance was effectively waived in the amendment described below.

On May 19, 2014, the Company executed an amendment to the credit agreement that waived the testing of certain covenants for compliance, including the March 31, 2014 debt to EBITDA covenant, provided that the Company maintain compensating balances equal to outstanding amounts under the credit agreement in accounts for which the bank will have sole access. The Company intends to work with the bank in the coming months to restructure the credit agreement, including the covenant requirements. In the absence of a restructured agreement, the Company believes it will need to continue to maintain the compensating balances at least through the end of 2014. As of May 19, 2014, the amount of the Company’s cash and short-term investments in these compensating balance accounts was $21.1 million, which will be classified as restricted cash on the Company’s June 30, 2014 condensed consolidated balance sheet.

At March 31, 2014, maturities of long-term debt were as follows (in thousands):

2014 (remaining nine months)	$	5,250
2015		10,395
2016		10,395
2017		3,500
	$	29,540

On May 23, 2014, one of the Company’s subsidiaries in China borrowed CNY 50 million ($8.0 million) under a working capital loan agreement with a bank. The loan bears interest at 7% per annum. Interest is payable monthly and the principal is due on November 23, 2014.