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Appeal of Shared National Credit (Third Quarter 2020)


The agent bank appealed the special mention risk rating assigned to a revolving credit during the third quarter 2020 Shared National Credit (SNC) examination


The appeal asserted that a pass rating is more appropriate. The appeal acknowledged that COVID-19 restrictions significantly impacted the obligor’s financial performance. However, the appeal asserted that actions taken by the obligor to reduce operating expenses and improve liquidity mitigated weaknesses posed by repayment capacity and high leverage. The appeal contended that based on conservative assumptions, the obligor’s repayment capacity was substantial, its performance to revised projections was on track from a cash flow perspective, and its strong liquidity position mitigated high leverage.

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 2013-9, "Guidance on Leveraged Lending"
  • OCC Bulletin 2014-55, "Frequently Asked Questions for Implementing March 2013 Interagency Guidance on Leveraged Lending"
  • 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 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 special mention risk rating assigned by the SNC examination team. The appeals panel concluded that marginal repayment capacity, weak performance to projections, and high leverage were potential weaknesses that may result in deterioration of repayment prospects at some future date.

The appeals panel acknowledged the obligor’s actions to address the drop in demand by altering its cost structure and thereby significantly reducing daily cash burn. The appeals panel also acknowledged the improved liquidity position but concluded that liquidity did not fully mitigate the impact of reduced demand on the obligor’s weakened current and near-term operations. While projections showed satisfactory repayment over a seven-year time horizon, near-term cash flow was strained and debt repayment was concentrated in the later years of the projection period.