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Appeal of Shared National Credit (First Quarter 2021)


A participant bank appealed the special mention risk rating assigned to a revolving and term credit during the first quarter 2021 Shared National Credit (SNC) examination.


The appeal asserted that a pass rating was more appropriate. The appeal acknowledged COVID-19 impacted the borrower; the appeal asserted, however, that the substantive impact was transitory and buffered by the company's cost-cutting measures and focus on the more resilient market segments. The borrower has adequate liquidity, a well-staggered debt maturity profile, and improved performance trends. Further, the appeal noted that the borrower's brands have a high concentration in locations that have fared well in the current environment.

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, "Rating Credit Risk" (April 2001, updated June 2017 for nonaccrual status)
  • OCC Bulletin 2020-35, "Troubled Debt Restructurings: 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 with 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 originally assigned special mention rating. The borrower took measures to implement cost savings initiatives, including reduced marketing expenses and reduction in personnel. The appeals panel, however, noted potential weaknesses given the sharp decline in revenue due to COVID-19 that resulted in high leverage, marginal primary source of repayment, and marginal performance to plan. Additionally, the ability to reduce leverage to projected levels was contingent on a strong turnaround and the timing for recovery was unclear. The appeals panel acknowledged the borrower's liquidity position. While liquidity provided satisfactory support, it did not offset the borrower's marginal repayment capacity or elevated leverage.