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, 2014					December 31, 2013
	Carrying Amount			Weighted Average Interest Rate		Carrying Amount			Weighted Average Interest Rate
Notes payable	$	12,025			—	$	9,738			—
Short-term borrowing		8,061			7.00%		—			—
Total notes payable and short-term borrowing	$	20,086				$	9,738
Long-term debt:
Acquisition-related	$	6,930			1.50%	$	9,975			1.50	%
Bank borrowings		21,000			3.15%		24,500			2.92	%
Total long-term debt		27,930					34,475
Less: current portion of long-term debt		(10,465	)				(10,325	)
Total long-term debt, net of current portion	$	17,465				$	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 issued under the Company’s existing line of credit facility 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.

At June 30, 2014, one of the Company’s subsidiaries in China had an outstanding bank acceptance draft of RMB 50 million ($8.1 million) which was issued to another of the Company’s subsidiaries that required a compensating balance of RMB 15 million ($2.4 million). This bank acceptance draft can be sold for cash at a discount prior to its expiration in August 2014. Compensating balances are classified as restricted cash and investments on the Company’s condensed consolidated balance sheets.

As of June 30, 2014 and December 31, 2013, restricted cash relating to these bank acceptance drafts issued to suppliers and the Company’s subsidiaries totaled $5.4 million and $2.1 million, respectively.

In June 2014, the Company’s subsidiary in China renewed a short-term line of credit facility with a banking institution which expires in June 2015. Under the agreement, RMB 160.0 million ($26.0 million) can be used for bank acceptance drafts (with a 25% compensating balance requirement) and up to RMB 120.0 million ($19.5 million) can be used for short-term loans, which will bear interest at varying rates depending upon the term. As of June 30, 2014, this line of credit facility had an outstanding balance of $12.0 million relating to the non-interest bearing bank acceptance drafts issued in connection with the Company’s notes payable to its suppliers in China. The Company is in the process of renewing its second line of credit facility which expired in June 2014.

Short-term borrowing

In May 2014, the Company’s subsidiary in China borrowed CNY 50 million ($8.1 million) under a working capital loan agreement with a bank, which was outstanding at June 30, 2014. The loan bears interest at 7% per annum. Interest is payable monthly and the principal is due on November 23, 2014.

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 ($6.9 million) was outstanding at June 30, 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 June 30, 2014 or December 31, 2013 and $20.0 million was available for borrowing at June 30, 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 June 30, 2014 the rate on the LIBOR option was 2.90%.

—

A term loan facility of $28.0 million, under which $21.0 million and $24.5 million was outstanding at June 30, 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 June 30, 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.

On May 19, 2014, the Company executed an amendment to the credit agreement that waived the testing of certain covenants for compliance, 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 June 30, 2014, the amount of the Company’s cash and investments in these compensating balance accounts was $21.0 million, which is classified as current and non-current restricted cash and investments on the Company’s June 30, 2014 condensed consolidated balance sheet (see Note 6).

At June 30, 2014, maturities of long-term debt were as follows (in thousands):

2014 (remaining six months)	$	3,500
2015		10,465
2016		10,465
2017		3,500
	$	27,930