VPT LOANS

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



	September 30, 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⁾	40.7		11.4		12.2		22.8
	$	59.2	$	11.4	$	30.9	$	95.6
Available-for-sale Securities ⁽³⁾:
CPTC loans	$	95.3	$	1.1	$	83.9	—
	$	95.3	$	1.1	$	83.9	$	—


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


⁽²⁾	Increase in balance includes a $17.1 million conversion from long-term unbilled accounts receivable to long-term notes receivable.


⁽³⁾	Included in short-term investment at September 30, 2016, and in other assets as of October 2, 2015 on the Company's Consolidated Balance Sheets.

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 in connection with a purchase agreement to supply a proton system to equip the NYPC. The commitment includes 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 Consolidated Statements of Earnings in fiscal year 2016.

In addition to the outstanding loan, the Company had $17.4 million, as of September 30, 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. A total of $12.2 million (consisting of $10.0 million principal amount and $2.2 million in accrued interest) of a previously existing loan was rolled over into the loan commitment. The Company had previously entered into an agreement with MPTC to supply it with a proton system. Varian loaned MPTC $11.4 million in September 2016, and in October 2016 loaned the remaining $11.4 million of its commitment. Varian's lending is in the form of a subordinated loan that is due, with accrued interest, in three annual payments from 2020 to 2022. The interest on the loan accrues at 12%. During fiscal year 2016, the Company converted $17.1 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 loan, the Company had recorded $9.2 million and $28.6 million as of September 30, 2016 and October 2, 2015, respectively, in accounts receivable from MPTC, which included unbilled accounts receivable.

CPTC Loans

In September 2011, ORIX and the Company, through its Swiss subsidiary, committed to loan up to $165.3 million (“Tranche A loan”) to CPTC to fund the development, construction and initial operations of the Scripps Proton Therapy Center in San Diego, California. ORIX is the loan agent for this facility and, along with CPTC and Scripps, has budgetary approval authority for the Scripps Proton Therapy Center. The Company’s maximum loan commitment under the Tranche A loan was $115.3 million. In June 2014, the Company, through its Swiss subsidiary, entered into a series of agreements, pursuant to which J.P. Morgan assumed $45.0 million of the Company’s original maximum commitment of $115.3 million, reducing the Company’s maximum commitment under the Tranche A loan to $70.3 million. Pursuant to these agreements, J.P. Morgan purchased $38.1 million of the Company’s outstanding Tranche A loan at par value. Through these agreements, the Company’s Swiss subsidiary also increased its individual loan commitment by $10.0 million (“Tranche B loan”). 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. 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 September 30, 2016, even though patient volumes continued to increase, CPTC was not in compliance with one of the patient volume covenants in the forbearance agreement, which would allow the Lenders to cease funding under the Tranche C loan and terminate the forbearance agreement. The Tranche A, Tranche B, and Tranche C loans are collectively, referred to as the “CPTC Loans.”

As of September 30, 2016, the Company had loaned $80.5 million under the Tranche A loan, $11.4 million under the Tranche B loan, and $3.4 million under the Tranche C loan. No amounts were available for draw down under the Tranche A and Tranche B loans. As of September 30, 2016, the Company's remaining commitment under the Tranche C loan is expected to be drawn down over the next 12 months, subject to approval by the lenders due to CPTC's non-compliance with one of the covenants under the forbearance agreement. As of October 2, 2015, the Company had loaned $73.5 million under the Tranche A loan and $10.4 million under the Tranche B loan. The amounts loaned under the CPTC Loans include accrued interest. During the fourth quarter of fiscal year 2016, the Company reclassified the CPTC Loans from other assets to short-term investments on the Company's Consolidated Balance Sheet as the loans are due in the next fiscal year.

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 September 30, 2016 and October 2, 2015. 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.

As of September 30, 2016 and October 2, 2015, the Company had recorded $32.6 million and $25.2 million in accounts receivable from CPTC, respectively, which included unbilled accounts receivable.

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 Consolidated Balance Sheets.