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Appeal of Shared National Credit (First Quarter 2023)


The agent bank appealed the substandard rating assigned to a revolving credit during the first quarter Shared National Credit (SNC) examination.


The appeal asserted a pass rating was more appropriate. The appeal contends the primary source of repayment is adequate and the borrower has fully recovered from pandemic-related stress. The appeal states the company has numerous options to repay debt and conserve cash, including deferring discretionary capital expenditures that support growth, freeing up cash flow to repay debt.

Supervisory Standards

An 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 2020-64, “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 SNC examination team’s originally assigned substandard rating based on a weak primary source of repayment and high leverage. Despite improvements in year-over-year revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), the fixed charge coverage (FCC) ratio was below 1.0 times for the trailing 12 months, and free cash flow was negative and significantly below expectations. The panel agreed including 100 percent of growth capital expenditure in the FCC ratio is excessive but also determined some growth capital expenditure is necessary to meet projections and maintain a viable business model. Projections for the upcoming year show modest improvement, but the FCC ratio remains below 1.0 times, and free cash flow remains negative.