VPT LOANS AND SECURITIES

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



	September 29, 2017				September 30, 2016
(In millions)	Balance		Commitment		Balance		Commitment
Notes receivable and senior secured debt:
MPTC loans ⁽¹⁾	$	60.1	$	—	$	40.7	$	11.4
NYPC loan ⁽¹⁾	18.5		—		18.5		—
RPTC senior secured debt ⁽²⁾	25.4		—		—		—
CPTC DIP loan ⁽¹⁾	5.1		2.2		—		—
PI loan ⁽¹⁾	3.0		—		—		—
	$	112.1	$	2.2	$	59.2	$	11.4
Available-for-sale securities:
Original CPTC loans ⁽³⁾	$	47.4	$	—	$	95.3	$	1.1
DRTC securities ⁽¹⁾	8.0		—		—		—
GPTC securities ⁽¹⁾	4.4		11.8		—		—
	$	59.8	$	11.8	$	95.3	$	1.1


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


⁽²⁾	Included in prepaid and other current assets on the Company's Consolidated Balance Sheets.


⁽³⁾	Included in other assets at September 29, 2017 and in short-term investments at September 30, 2016, on the Company's Consolidated Balance Sheets.

Rinecker Proton Therapy Center ("RPTC") Senior Secured Debt

In July 2017, the Company purchased the outstanding senior secured debt related to the RPTC in Munich, Germany for 21.5 million Euros or $24.5 million. By purchasing the senior secured debt, the Company has a right to 89 million Euros in claims against all of RPTC's assets. In September 2017, the management of RPTC filed for bankruptcy in Germany. As of September 29, 2017, preliminary insolvency proceedings have not been finalized, but the Company expects the insolvency proceedings to be finalized within the next twelve months. Upon finalization of bankruptcy proceedings, the Company believes it is probable it will recover its outstanding senior secured debt balance and accounts receivable, net.

As of September 29, 2017 and September 30, 2016, the Company also had $4.5 million and $4.8 million, respectively, in accounts receivable, net for RPTC, which does not include any unbilled accounts receivable.

Georgia Proton Therapy Center ("GPTC") Security

In July 2017, the Company committed to purchase up to $16.1 million in Senior Capital Appreciation Bonds ("Senior Bonds") from the Atlanta Development Authority, which is financing the GPTC. In July 2017, the Company purchased $4.3 million of the Senior Bonds in July 2017 that carry an interest rate of 8.0% per annum with interest accruing up to the principal amount of $6.6 million until January 1, 2023 and then will pay cash interest semi-annually. The Company will purchase the remaining commitment in July 2018. The Company is scheduled based upon the original terms to start receiving annual principal payments on the Senior Bonds beginning on January 1, 2024. The Senior Bonds will mature on January 1, 2028.

Delray Radiation Therapy Center ("DRTC") Securities and Loan

In April 2017, the Company purchased $8.0 million in Subordinate Bonds from the Public Finance Authority which is financing the DRTC. The Subordinate Bonds carry an interest rate of 8.5% and pay interest semi-annually. The Company is scheduled based upon the original terms to start receiving annual principal payments on the Subordinate Bonds beginning on November 1, 2021. The Subordinate Bonds will mature on November 1, 2046. In addition to the purchase of the Subordinate Bonds, the Company also loaned $3.0 million to Proton International LLC ("PI") to allow PI to purchase $3.0 million in Subordinate Bonds from the Public Finance Authority. The loan to PI carries an interest rate of 8.5% per annum, paid semi-annually and matures on April 30, 2022, subject to early repayment as proceeds are received by PI from the bonds purchased, and is secured by the related bonds.

New York Proton Center ("NYPC") Loan

In July 2015, the Company 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 included a $73.0 million “Senior First Lien Loan” with a six-year term at 9.0% interest and an $18.5 million “Subordinate Loan” with a six-and-a-half-year term at up to 13.5% interest. The principal balance and accrued interest on the Subordinate Loan are due in full on the maturity date. 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. The Company had funded $10.5 million in aggregate principal amount of Senior First Lien Loan commitments at the date of assignment. 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 3.0% of the Company's total Senior First Lien Loan commitment, both funded and unfunded. The Company recorded a $2.2 million impairment charge associated with the sale of the loan in the Consolidated Statements of Earnings in fiscal year 2016.

In addition to the outstanding loan, the Company had $13.3 million and $17.4 million as of September 29, 2017 and September 30, 2016, respectively, in accounts receivable, which included $1.3 million and $5.4 million in unbilled accounts receivable as of September 29, 2017 and September 30, 2016, respectively, from NYPC.

Maryland Proton Therapy Center ("MPTC") Loans

In May 2015, the Company 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 with the remaining $22.8 million funded in two equal amounts of $11.4 million each in fiscal year 2016 and fiscal year 2017. 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 12.0%. In addition, the Company had previously entered into an agreement with MPTC to supply it with a proton system, which included a deferral of up to $25 million of equipment payments when triggered by achievement of delivery milestones under the contract. As of September 29, 2017, the Company had recorded $25.1 million as long-term notes receivable related to this deferred payment arrangement. The notes receivable carry an interest rate of 15.0% and are due September 30, 2018.

As of September 29, 2017, the Company had zero net accounts receivable from MPTC. As of September 30, 2016, the Company had recorded $9.2 million in accounts receivable from MPTC, which included $7.1 million in unbilled accounts receivable.

CPTC Loans

In September 2011, ORIX and the Company 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 agreed not to 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 was $4.4 million ("Tranche C loan"). The Tranche A, Tranche B, and Tranche C loans are collectively, referred to as the “Original CPTC Loans.” No amounts are currently available for drawdown under the Original CPTC Loans.

As of December 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. In January 2017, the Company was informed of actions taken by CPTC and the loan agent, including CPTC obtaining shareholder consents for voluntary bankruptcy filing and the loan agent deciding that no additional funding would be available outside of a bankruptcy process. As a result of this information and the Company’s analysis that these actions would likely lead to insolvency or bankruptcy proceedings at CPTC, the Company determined that it was appropriate to record a $38.3 million impairment, as determined by the discounted cash flow model using a single best estimate methodology, of its Original CPTC Loans on the Consolidated Statements of Earnings in the first quarter of fiscal year 2017. As a result of this impairment, the Original CPTC Loans were written down to their estimated fair value of $60.0 million and reclassified from short-term investments to other assets on the Company's Consolidated Balance Sheet because the Company does not expect to collect or sell all or a portion of these loans in the next twelve months.

In March 2017, CPTC filed for bankruptcy and concurrently entered into a Debtor-in-Possession facility (the "DIP Facility") with the Lenders for up to $16.0 million of additional financing during the bankruptcy process. The Company's pro-rata share of the DIP Facility is $7.3 million. At September 29, 2017, the Company's remaining commitment under the DIP Facility is expected to be drawn down over the next 12 months. The DIP Facility carries an interest rate at the London Interbank Offer Rate (“LIBOR”) plus 9.0% per annum and has a senior secured position ahead of the Original CPTC Loans.

Between April 2017 and August 2017, the Company did not become aware of any new information that warranted an impairment assessment. In September 2017, the Lenders and Scripps signed a Transition Agreement to transition the operations of the center from Scripps to a new operator. Based on the terms of the Transition Agreement, a slower projected growth in patient volume, an increase in additional projected capital needs and the Company's analysis, the Company determined that an additional $13.1 million impairment charge was deemed appropriate on its Original CPTC Loans and was recorded on the Consolidated Statements of Earnings in the fourth quarter of fiscal year 2017. Based on the most current available financial and operational information, the Company believes that recoverability of the entire $47.4 million of amortized cost of its Original CPTC Loans is probable.

ORIX has the option to purchase the Company's share of the Original CPTC Loans at par. The Original 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 29, 2017 and September 30, 2016. The Original CPTC Loans are collateralized by all of the assets of the Scripps Proton Therapy Center, subordinated to the DIP Facility. The Original CPTC Loans mature in September 2017 and bear interest at the LIBOR plus 7.0% per annum with a minimum interest rate of 9.0% per annum. Interest only payments on the Original 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.

In the first quarter of fiscal year 2017, the Company reserved the entire accounts receivable balance, which included $17.2 million in unbilled accounts receivable, from CPTC and recorded an allowance for doubtful accounts of $34.2 million due to the credit-related issues referred to above. The expense associated with the allowance for doubtful accounts was included in selling, general and administrative expense on the Consolidated Statements of Earnings. As of September 30, 2016, the Company had recorded $32.6 million in accounts receivable, net, from CPTC, which included $17.2 million in unbilled accounts receivable.

The Company has determined that MM Proton I, LLC, MPTC, CPTC and RPTC 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, CPTC and RPTC is limited to the carrying amounts of the above mentioned assets on its Consolidated Balance Sheets.