VPT LOANS

The following table lists the Company's outstanding loans and commitments for funding development and construction of various proton therapy centers:



	July 1, 2016				October 2, 2015
(In millions)	Balance		Commitment		Balance		Commitment
Long-term notes receivable⁽¹⁾:
NYPC loan	$	18.5	$	—	$	18.7	$	72.8
MPTC loans ⁽²⁾	29.3		22.8		12.2		22.8
	$	47.8	$	22.8	$	30.9	$	95.6
Available-for-sale Securities ⁽¹⁾:
CPTC loans	$	92.4	$	1.9	$	83.9	$	—
	$	92.4	$	1.9	$	83.9	$	—


(1)	Included in other assets on the Company's Condensed Consolidated Balance Sheets.


(2)	Increase in balance was primarily due to a $17.0 million conversion from long-term unbilled accounts receivable to long-term notes receivable.

New York Proton Center ("NYPC") Loan

In July 2015, the Company, through one of its subsidiaries, committed to loan up to $91.5 million to MM Proton I, LLC ("MMI") in connection with a purchase agreement to supply a proton system to equip NYPC. The commitment included a $73.0 million “Senior First Lien Loan” with a six-year term at 9% interest and an $18.5 million “Subordinate Loan” with a six-and-a-half-year term at up to 13.5% interest. The Company's entire commitment of the Subordinate Loan was drawn down in fiscal year 2015. In June 2016, the Company assigned to Deutsche Bank AG ("Deutsche Bank") its entire $73.0 million Senior First Lien Loan commitment. As of the date of the assignments, $10.5 million in aggregate principal amount of Senior First Lien Loan commitments had been funded by the Company. The total consideration paid by Deutsche Bank to the Company in consideration for the assignment was approximately $8.3 million in cash, representing the funded portion, less a discount of 3% of the Company's total Senior First Lien Loan commitment, both funded and unfunded. The Company recorded a $2.2 million impairment associated with the sale of the loan in selling, general and administrative in the three months ended July 1, 2016.

In addition to the outstanding loan, the Company had $15.3 million, as of July 1, 2016, in accounts receivable, which includes unbilled accounts receivable, from NYPC. As of October 2, 2015, the Company did not have any accounts receivable from NYPC.

Maryland Proton Therapy Center ("MPTC") Loans

In May 2015, the Company, through one of its subsidiaries, committed to loan up to $35.0 million to MPTC, which included rolling over an existing loan for $10.0 million plus $2.2 million of previously accrued interest. The Company had previously entered into an agreement with MPTC to supply it with a proton system. Varian's commitment is in the form of a subordinated loan that is due, with accrued interest, in three annual payments from 2020 to 2022. The Company's outstanding commitment under the loan to MPTC is to be paid in two installments of $11.4 million, one in fiscal year 2016, and one in fiscal year 2017. The interest on the loan accrues at 12%. In June 2016, the Company converted $17.0 million in deferred payment arrangements, previously recorded as long-term unbilled accounts receivable, with MPTC to a long-term note receivable due September 30, 2018. The note receivable carries an interest rate of 15%.

In addition to the outstanding loans, the Company had $6.3 million and $28.6 million, as of July 1, 2016 and October 2, 2015, respectively, in accounts receivable, which includes unbilled accounts receivable, from MPTC.

CPTC Loans

As of October 2, 2015, the Company had loaned $73.5 million under a Tranche A loan and $10.4 million under a Tranche B loan to CPTC to fund the development, construction and initial operations of the Scripps Proton Therapy Center in San Diego, California under a loan agreement with ORIX and J.P. Morgan. ORIX is the loan agent for this facility and, along with CPTC and Scripps, has budgetary approval authority for the Scripps Proton Therapy Center. In November 2015, ORIX, J.P. Morgan and the Company (collectively the “Lenders”) and CPTC entered into a forbearance agreement whereby the lenders will not enforce their rights to principal and interest payments until April 2017, subject to CPTC maintaining certain covenants and achieving certain targets, with additional extensions through September 2017 based on hitting additional targets largely around patient volume and cash flow. In connection with the forbearance agreement the Lenders agreed to make available up to an additional $9.7 million of loan proceeds (based on their pro-rata share of the existing loan) with terms similar to the Tranche A loan for additional working capital needs; the Company's proportionate share of this commitment is $4.4 million ("Tranche C loan"). There were no other significant changes to the loan agreements. As of July 1, 2016, the Company's remaining commitment under the Tranche C loan is expected to be drawn down over the next 12 months. The Tranche A, Tranche B and Tranche C loans are collectively, referred to as the “CPTC Loans.” As of July 1, 2016, the Company had loaned $78.7 million under the Tranche A loan, $11.1 million under the Tranche B loan and $2.6 million under the Tranche C loan. No amounts were available for draw down under the Tranche A and Tranche B loans.

The amounts loaned under the CPTC Loans include accrued interest. ORIX has the option to purchase the Company's share of the CPTC loans at par. The CPTC loans meet the definition of a debt security and therefore are accounted for as available-for-sale securities and recorded at fair value as of July 1, 2016 and October 2, 2015. The Company's CPTC loans are included in other assets on the Company's Condensed Consolidated Balance Sheets as of July 1, 2016 and October 2, 2015 because the Company did not expect to be repaid and did not intend to sell all or a portion of its CPTC loans in the next twelve months. The Tranche B loan is subordinated to the Tranche A loan in the event of default, but otherwise has the same terms as the Tranche A loan. The CPTC Loans are collateralized by all of the assets of the Scripps Proton Therapy Center. The CPTC Loans mature in September 2017 and bear interest at the London Interbank Offer Rate (“LIBOR”) plus 7.00% per annum with a minimum interest rate of 9.00% per annum. Interest only payments on the CPTC Loans were due monthly in arrears until January 1, 2015, at which time monthly payments based on amortization of the principal balance over a 15-year period at the above mentioned interest rate become due and payable. To date, no amortizing principal payments have been made. The principal and interest payments are subject to the forbearance agreement mentioned above.

In addition to the outstanding loans, the Company had $30.9 million and $25.2 million, as of July 1, 2016 and October 2, 2015, respectively, in accounts receivable, which includes unbilled accounts receivable, from CPTC.

The Company has determined that MM Proton I, LLC, MPTC and CPTC are variable interest entities and that the Company holds a significant variable interest of each of the entities through its participation in the loan facilities and its agreements to supply and service the proton therapy equipment. The Company has concluded that it is not the primary beneficiary of any of these entities. The Company has no voting rights, has no approval authority or veto rights for these centers' budget, and does not have the power to direct patient recruitment, clinical operations and management of these Centers, which the Company believes are the matters that most significantly affect their economic performance. The Company’s exposure to loss as a result of its involvement with MM Proton I, LLC, MPTC and CPTC is limited to the carrying amounts of the above mentioned assets on its Condensed Consolidated Balance Sheets.