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Appeal of Shared National Credit (Third Quarter 2021)


Two participant banks appealed the special mention risk rating assigned to a revolving credit during the third quarter Shared National Credit (SNC) examination.


The appeals asserted that a pass rating is appropriate. The appeals contended that the borrower’s operating performance had improved to a satisfactory level over the past 12 months. The sale of a noncore business unit in the first half of 2021 generated significant cash that substantially reduced leverage and improved liquidity. The appeals also pointed to improved projected repayment, noting that 67 percent of total debt could be repaid within seven to eight years.

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 agreed with many aspects of the appeals and assigned a pass risk rating. Operating performance improved in 2021 because of increased product demand. Interim six-month adjusted earnings before income, taxes, depreciation, and amortization (EBITDA) as of June 30, 2021, improved significantly. The sale of the noncore business unit positively altered the borrower’s balance sheet, resulting in a substantial reduction in debt, lower projected interest expense, and an increase in balance sheet liquidity. Projections produced after the sale are reasonable and show cumulative free cash flow sufficient to repay 67 percent of outstanding total debt over seven to eight years.