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

Background

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

Discussion

The appeal asserted that the credits should be rated pass. The appeal argued that the borrower has sufficient liquidity and continues to generate adequate free cash flow to pay down debt. The borrowing base commitment was reduced and it did not create liquidity concerns. Finally, the appeal asserted that the company is well-run, disciplined, and a low-risk.

Conclusion

An interagency appeals panel of three senior credit examiners agreed with the appeal and assigned pass risk ratings to the credits.

The appeals panel concluded that the primary source of repayment was satisfactory and that projections indicate that the borrower's future cash flows can repay the reserve-based loan (RBL) commitment well within 60 percent of the economic life of proved reserves and within 75 percent of the economic life for total secured debt as described in the "Oil and Gas Exploration and Production Lending" booklet of the Comptroller's Handbook. The company reduced the RBL year-over-year from cash flow while maintaining adequate balance sheet cash. There are no significant near-term debt maturities, and cash needs are being met via operating cash flow and working capital. The borrower's leverage position is considered manageable and is projected to improve in the near term.