(14) Borrowings

Short-term Bank Loans

The Company’s international securities clearing and settlement activities are funded with operating cash or with short-term bank loans in the form of overdraft facilities. At December 31, 2016, there was $72.2 million outstanding under these facilities at a weighted average interest rate of approximately 1.0% associated with international settlement activities.

In the U.S., securities clearing and settlement activities are funded with operating cash, securities loaned or with short-term bank loans under the Credit Agreement described below.

ITG Inc., as borrower, and Investment Technology Group, Inc. (the “Parent Company”), as guarantor, maintained a $150 million 364‑day revolving credit agreement (the “2016 Credit Agreement”) with a syndicate of banks and JPMorgan Chase Bank, N.A., as Administrative Agent that matured in January 2017. The purpose of this credit line was to provide liquidity for the Company’s U.S. brokerage operations to satisfy clearing margin requirements and to finance temporary positions from delivery failures or non-standard settlements. As a result, the Parent Company had additional flexibility with its existing cash and future cash flows from operations to selectively invest in growth initiatives and to return capital to stockholders. Depending on the borrowing base, availability under the 2016 Credit Agreement is limited to either (i) a percentage of the clearing deposit required by the National Securities Clearing Corporation, or (ii) a percentage of the market value of temporary positions pledged as collateral. Under the 2016 Credit Agreement, interest accrued at a rate equal to (a) a base rate, determined by reference to the federal funds rate plus (b) a margin of 2.50%. Available but unborrowed amounts under the 2016 Credit Agreement are subject to an unused commitment fee of 0.75%. Among other restrictions, the terms of the 2016 Credit Agreement include (a) negative covenants related to liens, (b) financial covenant requirements for maintaining a consolidated leverage ratio (as defined) and a liquidity ratio (as defined), as well as requirements for maintaining minimum levels of tangible net worth (as defined) and regulatory capital (as defined), and (c) restrictions on investments, dispositions and other restrictions customary for financings of this type.

The events of default under the 2016 Credit Agreement included, among others, payment defaults, cross defaults with certain other indebtedness, breaches of covenants, loss of collateral, judgments, and changes in control and bankruptcy events. In the event of non-payment, the 2016 Credit Agreement requires ITG Inc. to pay incremental interest at the rate of 2.0%. In the event of a default and depending on the nature thereof, the commitments will either automatically terminate and all unpaid amounts immediately become due and payable, or the lenders may in their discretion terminate their commitments and declare due all unpaid amounts outstanding.

On January 27, 2017, ITG Inc., as borrower, and Parent Company, as guarantor, entered into a new $150 million 364-day revolving credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as Administrative Agent expiring on January 26, 2018 with essentially the same terms as the 2016 Credit Agreement (the “2017 Credit Agreement”) (see Note 24, Subsequent Event).

At December 31, 2016 and 2015, there were no amounts outstanding under the Company’s credit agreements.

Term Debt

At December 31, term debt is comprised of the following (dollars in thousands):


	2016		2015
Term loans	$	3,098	$	3,606
Obligations under capital lease		3,269		8,961
Total	$	6,367	$	12,567

On December 30, 2015, the Company entered into a five year, $3.6 million note and security agreement with Hewlett-Packard Financial Services (“H-P Loan”), under which purchases of new server equipment, software license fees, maintenance fees and fees for other services were financed. The loan principal is payable in twenty quarterly installments of $195,000 beginning in April 2016 and accrues interest at 2.95%. The reductions to the principal balance applying the interest method to the required payments are as follows (dollars in thousands):


	Aggregate
Year	Amount
2017	$	694
2018		715
2019		737
2020		759
2021		193
2022		—
	$	3,098

On June 1, 2011, Parent Company as borrower, entered into a $25.5 million Master Loan and Security Agreement (the “Equipment Loan Agreement”) with Banc of America Leasing & Capital, LLC (“Bank of America”). The four‑year term loan established under this agreement (the “Equipment Loan”) was secured by a security interest in existing furniture, fixtures and equipment owned by the Parent Company and certain U.S. subsidiaries as of June 1, 2011. The Equipment Loan was payable in monthly principal installments of $530,600 through May 2015 and accrued interest at 3.0% plus the average one month London Interbank Offered Rate for dollar deposits.

Along with the Equipment Loan Agreement, Parent Company entered into a $5.0 million master lease facility with Bank of America (“Master Lease Agreement”), under which purchases of new equipment were financed. Each equipment lease under the Master Lease Agreement is structured as a capital lease and has a separate 48‑month term from its inception date, at the end of which Parent Company may purchase the underlying equipment for $1. At December 31, 2016, all capital leases under this facility were fully paid.

On August 10, 2012, Parent Company entered into a $25.0 million master lease facility with BMO Harris Equipment Finance Company (“BMO”) to finance equipment and construction expenditures related to the build‑out of the Company’s new headquarters in lower Manhattan. The original amount borrowed of $21.2 million has a 3.39% fixed‑rate term financing structured as a capital lease with a 48‑month term that began upon the substantial completion of the build-out, at the end of which Parent Company may purchase the underlying assets for $1. At December 31, 2016, there was $3.3 million outstanding under the BMO facility. The remaining principal balance will be paid in full by July 2017.

The Master Lease Agreement and the BMO facility all required compliance with the financial covenants of the 2016 Credit Agreement and require compliance with the financial covenants of the 2017 Credit Agreement.

Interest expense on the 2016 Credit Agreement, the Equipment Loan Agreement, the Master Lease Agreement and the BMO facility, including commitment fees and the amortization of debt issuance costs totaled $2.2 million, $1.8 million and $2.3 million in 2016, 2015 and 2014, respectively.