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Appeal of Shared National Credit (SNC)-(Fourth Quarter 2016)


A participant bank appealed the special mention ratings assigned to two credit facilities during the August 2016 SNC examination.


The appeal asserted that the credits should be rated pass. The appeal argued that despite the below-forecast performance, cash flow remains sufficient to meet debt service and cash operating needs. In addition, total leverage is well below the 6 times threshold identified for leveraged loans. The appeal asserted that while liquidity has decreased from levels noted in prior periods, it remains sufficient to support the borrower’s operations.


An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned risk ratings of special mention.

The appeals panel concluded that the special mention ratings are warranted based on the borrower’s adverse revenue trends, materially under-plan performance, increasing leverage, and weak liquidity. For the previous four quarters, adjusted earnings before interest, taxes, depreciation, and amortization are significantly below prior year periods and materially under plan for both 2015 and the first two quarters of 2016. Projected increasing leverage resulted in leverage covenant relief granted by the bank group for several future periods. The appeals panel also concluded that liquidity is weak and that availability under the revolver has been reduced due to covenant restrictions. These credit weaknesses may result in deterioration of repayment prospects for the credit at some future date.