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A participant bank appealed the substandard risk rating assigned to a revolving credit during the third quarter Shared National Credit (SNC) examination.
The appeal asserted that a pass rating is appropriate. The appeal contended that although operating performance was limited, the borrower’s leverage ratio is projected to decline. The appeal pointed to projected improvement in operating performance and a fixed contract backlog of a material dollar amount to support the proposed pass rating. Finally, the appeal contended that several extraordinary items negatively affected the company’s performance in early 2021.
The interagency appeals panel conducted a comprehensive review of the information submitted by the bank and relied on the supervisory standards outlined below:
An interagency appeals panel of three senior credit examiners concurred with the SNC review team’s regulatory rating of substandard based on the borrower’s weak primary source of repayment and high leverage. Although improved commodity prices, increased demand, and lower expenses have a positive impact on operating performance and cash flow, available financial information does not indicate that projected repayment capacity has improved to a satisfactory level.