PROTON SOLUTIONS LOANS AND INVESTMENTS

In limited cases, the Company participates, along with other investors and at market terms, in the financing of proton therapy centers. Over time, the Company has divested some of its investments, including investments in CPTC, NYPC, GPTC and DRTC.

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



	September 28, 2018				September 29, 2017
(In millions)	Balance		Commitment		Balance		Commitment
Notes receivable and secured debt:
NYPC loan ⁽¹⁾	$	28.0	$	—	$	24.6	$	—
RPTC senior secured debt ⁽²⁾	24.9		—		25.4		—
Proton International LLC loan ⁽¹⁾	1.7		—		3.1		—
MPTC loans ⁽¹⁾	—		—		67.4		—
CPTC DIP loan ⁽¹⁾	—		—		5.1		2.2
	$	54.6	$	—	$	125.6	$	2.2
Available-for-sale Securities:
MPTC Series B-1 Bonds ⁽²⁾	$	25.1	$	—	$	—	$	—
MPTC Series B-2 Bonds ⁽¹⁾	23.1		—		—		—
GPTC securities ⁽³⁾	7.9		—		4.4		11.8
APTC securities ⁽²⁾	6.4		—		—		—
Original CPTC loans ⁽¹⁾	—		—		47.4		—
DRTC securities ⁽¹⁾	—		—		8.3		—
	$	62.5	$	—	$	60.1	$	11.8

CPTC Loans and Investment:
Short-term revolving loan ⁽²⁾	$	3.7	$	3.5	$	—	$	—
Term loan ⁽¹⁾	44.0		—		—		—
Equity investment in CPTC⁽¹⁾	2.2		—		—		—
	$	49.9	$	3.5	$	—	$	—


⁽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 prepaid and other current assets at September 28, 2018, and other assets at September 29, 2017, on the Company's Consolidated Balance Sheets.

Alabama Proton Therapy Center ("APTC") Securities

In December 2017, the Company purchased $6.0 million in Subordinate Revenue Bonds which financed the APTC. The Subordinate Revenue Bonds carry an interest rate of 8.5% and pay interest semi-annually. The Company is scheduled to start receiving annual principal payments on the Subordinate Revenue Bonds beginning on November 1, 2022. The Subordinate Revenue Bonds will mature on October 1, 2047.

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. In January 2018, the final insolvency proceedings commenced, and 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 the outstanding senior secured debt balance and trade accounts receivable, net.

At both September 28, 2018 and September 29, 2017, the Company had $4.5 million, in trade receivables, net for RPTC, which does not include any unbilled accounts receivable.

Georgia Proton Treatment Center ("GPTC") Security

In July 2017 and July 2018, the Company purchased a total of $16.1 million in Senior Capital Appreciation Bonds ("Senior Bonds") which financed the GPTC. The Senior Bonds carry an interest rate 8.0% per annum with interest accruing up to the principal amount of $23.3 million until January 1, 2023, and then will pay cash interest semi-annually.

In September 2018, the Company sold $8.5 million, including accrued interest, of its current carrying value of its Senior Bonds for $8.3 million in cash. 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.

In addition to the Senior Bonds, the Company had $12.5 million as of September 28, 2018 in trade and unbilled receivables, which included $11.7 million in unbilled receivables from GPTC. The Company did not have any trade and unbilled receivables as of September 29, 2017 from GPTC.

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

In April 2017, the Company purchased $8.0 million in Subordinate Bonds, which financed the DRTC. In January 2018, the Company sold all of its Subordinate Bonds for $8.5 million, which included accrued interest.

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 June 2016, the Company assigned $73.0 million of this loan to Deutsche Bank AG. The remaining balance is comprised of 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 at maturity in January 2022.

In addition to the outstanding loan, as of September 28, 2018, the Company had $24.1 million of unbilled receivables and as of September 29, 2017, the Company had $13.3 million in trade and unbilled receivables, which included $1.3 million in unbilled receivables from NYPC.

Maryland Proton Treatment Center ("MPTC") Loans and Securities

In fiscal year 2017, the Company completed its funding requirements of $35.0 million to MPTC. In fiscal year 2018, the Company recorded impairment charges of $22.1 million on its MPTC subordinated loan, which included accrued interest, due to the expected difference in value between the loan held by the Company and the value of the security issued to the Company in exchange, as part of the refinancing that occurred in August 2018. In addition, the Company had entered into an agreement with MPTC to supply it with a proton system, which included a deferral of up to $25.0 million of equipment payments when triggered by achievement of delivery milestones under the contract. The Company had recorded $25.0 million notes receivable related to this deferred payment arrangement with MPTC.

In August 2018, MPTC refinanced its outstanding debt. As part of the refinancing, in exchange for its outstanding subordinated loan, the Company received $22.9 million in Subordinate Revenue Bonds ("MPTC Series B-2 Bonds") that carry an interest rate of 8.5% per annum with interest accruing up to the principal amount of $33.9 million until January 1, 2022 and then will pay cash interest semi-annually. The MPTC Series B-2 Bonds will mature on January 1, 2049. In exchange for its outstanding deferred payment arrangement, the Company also received $6.0 million in cash and $25.0 million in Subordinate Revenue Bonds ("MPTC Series B-1 Bonds") that carry an interest rate of 7.5% with interest accruing up to the principal amount of $32.0 million until January 1, 2022 and then will pay cash interest semi-annually. The MPTC Series B-1 Bonds will mature on January 1, 2048. The MPTC Series B-1 Bonds are senior in right and time to the MPTC Series B-2 Bonds.

As of September 28, 2018, the Company had $4.1 million in trade receivables from MPTC. At September 29, 2017, the Company had zero net trade and unbilled receivables from MPTC.

Variable Interest Entities

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

California Proton Therapy Center ("CPTC") Loans and Investment

Between September 2011 and November 2015, the Company, ORIX and J.P. Morgan (“the Lenders”) funded loans (“Original CPTC Loans”) to the Scripps Proton Therapy Center in San Diego, California. ORIX is the loan agent.

In March 2017, California Proton Treatment Center, LLC ("Original CPTC") filed for bankruptcy and concurrently entered into a Debtor-in-Possession facility (the "DIP Facility") with the Lenders where the Company's pro-rata share of the DIP Facility was $7.3 million. In September 2017, the Lenders and Scripps signed a Transition Agreement to transition the operations of the center from Scripps to Proton Doctors Professional Corporation (“Practice”). As a result of these events the Company recorded an impairment charge of $51.4 million to its Original CPTC Loans in fiscal year 2017.

Pursuant to an order of the Bankruptcy Court, Original CPTC conducted an auction of the Scripps Proton Therapy Center. On December 6, 2017 (“Closing Date”), the Bankruptcy Court approved the sale of Scripps Proton Therapy Center to the California Proton Therapy Center, LLC (“CPTC”), an entity owned by the Lenders. The Lenders purchased all assets and assumed $112.0 million of Original CPTC’s outstanding liabilities. On December 13, 2017, the Bankruptcy Court dismissed the bankruptcy filing of Original CPTC.

On the Closing Date, the Lenders entered into a Credit Agreement with Original CPTC of which the terms of the Original CPTC Loans, DIP Facility and accrued interest (collectively “Former Loans”) were modified. In addition to the partially satisfied Original CPTC Loans reinstated by the Bankruptcy Court, the Company received a 47.08% equity ownership in CPTC. Original CPTC has assigned all its Former Loans to CPTC at an amount of $112.0 million, the partially satisfied loan balance. Per the terms of the Credit Agreement, the Company's portion of the $112.0 million is $53.5 million; the remainder is allocated between ORIX and J.P. Morgan. The $53.5 million is composed of four Tranches: Tranche A of $2.0 million, Tranche B of $7.2 million, Tranche C of $15.6 million, and Tranche D of $28.7 million (collectively the "Term Loan"). The maturity date of the Term Loan is three years from the Closing Date. The Term Loan is secured by the assets of CPTC.

In addition, the Lenders have committed to lend up to $15.0 million in a Revolving Loan with a maturity date of one year from the Closing Date. The Company's share of the funding commitment from the Revolving Loan is $7.2 million, and as of September 28, 2018, the Company has funded $3.7 million.

All of the Tranches accrue paid-in-kind interest at 7.5% per annum, except the Tranche B and Revolving Loan which accrue paid-in-kind interest at 10% per annum. The seniority of these loans is as follows: Revolving Loan, Tranche A, Tranche B, Tranche C and Tranche D. If CPTC is in default, the interest rate of the Tranche A, C and D will increase to 9.5% and the interest rate on the Tranche B and the Revolving Loan will increase to 12.0%.

Considering Original CPTC’s financial difficulties, the modification of the original terms of the Former Loans, and the Lenders agreement to grant a concession on the Original CPTC Loans, the Company classified the transaction above as a troubled debt restructuring (“TDR”). The Company does not have any unamortized fees from the Former Loans and any prepayment penalties. As a result, the cost basis and fair value of the Company's outstanding Term Loan approximates the carrying value of the Former Loans prior to the TDR of $53.5 million.

The Company, using a discounted cash flow approach, determined that the fair value of CPTC's equity as of Closing Date is $20.1 million. The Company's 47.08% ownership percentage amounts to a $9.5 million equity interest in CPTC. Since the common stock received was in addition to a loan receivable partially satisfied through the bankruptcy proceedings, in accordance with the TDR accounting guidance, the Company recorded the equity interest at fair value and as an offset to the reinstated loan balance. The equity investment in CPTC is accounted for under the equity method of accounting, and the Company accounts for its equity method share of the income or loss of CPTC on a quarter lag basis. The Company recorded a loss from its equity investment in CPTC of $7.3 million in the fiscal year ended September 28, 2018 in selling, general and administrative expenses on the Consolidated Statements of Earnings.

As of September 28, 2018, the Company had recorded $1.8 million in accounts receivable, net, from CPTC. As of September 29, 2017, the Company had zero net trade and unbilled receivables from CPTC.

Further, the Company has determined that CPTC is a variable interest entity because of the Company's participation in the loan facilities, equity ownership and its operations and maintenance agreement. The Company has one board seat out of five, has no special approval authority or veto rights for CPTC’s budget, and does not have the power to direct patient recruitment, clinical operations and management of CPTC, which the Company believes are the matters that most significantly affect their economic performance. Therefore, the Company does not have majority voting rights and no power to direct activities at CPTC as a result it is not the primary beneficiary of CPTC.