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Appeal of Shared National Credit (Third Quarter 2021)


A participant bank appealed the substandard risk rating assigned to a term credit facility during the third quarter Shared National Credit (SNC) examination.


The appeal asserted that a pass rating is appropriate. The appeal pointed to updated appraisal values and the results of renewed negotiations with lenders as support. The appeal also pointed to differing opinions with the SNC review team about the relevance of not complying with covenant thresholds and extension hurdles. Finally, the appeal noted a differing opinion with the SNC review team regarding how the borrower may be impacted by macro shifts away from “brick and mortar” retail shopping.

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:

  • Comptroller's Handbook, "Commercial Loans" (Narrative—March 1990, Procedures—March 1998)
  • Comptroller's Handbook, "Leveraged Lending" (February 2008)
  • Comptroller's Handbook, "Rating Credit Risk" (April 2001, updated June 2017 for nonaccrual status)
  • OCC Bulletin 2020-35, “Trouble Debt Restructuring: Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by COVID-19 (Revised)”
  • OCC Bulletin 2020-64, “Examinations: Interagency Examiner Guidance for Assessing Safety and Soundness While Considering the Effect of COVID-19 on Institutions”
  • OCC Bulletin 2020-72, “Credit Administration: Joint Statement on Additional Loan Accommodations Related to COVID-19”


An interagency appeals panel of three senior credit examiners concurred with the SNC review team’s regulatory rating of substandard. A lack of progress in borrower negotiations, uncertainty regarding the borrower’s willingness and ability to remargin the facility as required by contractual extension hurdles, negative operating trends, and marginal collateral support heighten refinance risk and contribute to a well-defined weakness. Occupancy and net operating income have declined since year-end 2018 because of reduced demand for retail brick and mortar stores and COVID-19’s impact. Real estate collateral estimates available during the review indicate coverage of total debt ranging between 0.90X and 1.03X. The appeals panel acknowledges the current appraisal referenced in the appeal letter and more recent progress in negotiations for extension of the January 2022 loan maturity; however, this information was not available at the time of the review and as a result was not considered for purposes of the appeal decision.