Skip to main content
OCC Flag

An official website of the United States government

Appeal of Shared National Credit (Third Quarter 2022)


A participant bank appealed the special mention rating assigned to a term credit during the third quarter Shared National Credit (SNC) examination.


The appeal asserted that a pass rating was appropriate. The appeal contended the special mention rating was based on a calculation that inappropriately included mezzanine debt, thereby understating debt service capacity. The appeal assertedthe mezzanine debt should have been excluded because the obligor is another borrowing entity. Exclusion of the mezzanine debt increased annualized second quarter 2022 interest coverage to nearly two times and resulted in more than sufficient debt service coverage, assuming a thirty-year amortization on senior term 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”


An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned special mention rating based on the borrower’s marginal primary source of repayment and high refinance risk. Pandemic-related issues delayed property stabilization, and this resulted in stressed operating performance. The panel concluded it was appropriate to include the mezzanine debt in the aggregate facility commitments, financial metric calculations, and covenant compliance tests, in accordance with the loan terms in the credit agreement. With the inclusion of the mezzanine debt, annualized second quarter 2022 net operating income covered estimated principal and interest payments slightly over one times based on a 30-year amortization. Cash flow is improving as the mixed-use property continues to approach stabilization. Refinance risk is high as maturity will occur prior to projected property stabilization.