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Appeal of Shared National Credit (Third Quarter 2018)


A participant bank appealed the substandard rating assigned to a term credit agented by a national bank and reviewed during the third quarter 2018 Shared National Credit (SNC) examination.


The appeal asserted a pass rating is warranted due to the special purpose collateral operating above projected levels and the obligor’s documented capacity to service the debt based on quarterly covenant compliance certifications. The appeal acknowledged that the obligor did not fully fund the required debt service reserve account, but noted that the lending group’s decision to approve modifications to the loan documentation to defer funding this account was an acceptable practice for project finance credits.


An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned rating of substandard.

The appeals panel determined that the lack of detailed financial information supporting the borrower’s ability to service the debt, and failure to fund the debt service reserve account, per the original terms, were well-defined weaknesses that warranted a rating of substandard. Quarterly compliance information collected from the borrower lacked sufficient detail to substantiate operating performance.