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Appeal of Shared National Credit (Third Quarter 2023)


The agent bank appealed the substandard rating assigned to an asset-based revolving credit facility during the third-quarter Shared National Credit (SNC) examination.


The appeal asserted a pass rating was more appropriate. The appeal contended the facility was a properly margined, fully monitored, and conforming asset-based loan (ABL). In addition, an adequate primary source of repayment and an improved liquidity profile, following receipt of cash proceeds from a sale-leaseback transaction, supported a pass rating.

Supervisory Standards

The interagency appeals panel conducted a comprehensive review of the information submitted by the bank and relied on the supervisory standards outlined below:


An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned substandard rating based on the borrower’s weak operating performance and unstable liquidity trends. While the sale-leaseback proceeds covered actual cash burn over the previous 12 months, weak operating performance combined with volatile operating trends and lack of reliable projections prevented a liquidity-based risk rating approach on the ABL. Operating performance was weak given the increase in cash burn for the trailing 12 months. A prolonged period of weak operating performance poses a material threat to the company’s liquidity.