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Appeal of Shared National Credit (SNC)-(Second Quarter 2016)


A participant bank appealed the substandard rating assigned to a revolving credit during the February 2016 SNC examination.


The appeal asserted that the credit should be rated special mention. The appeal acknowledged credit weaknesses, including projected insufficient capacity to de-lever over a reasonable period and increasing leverage metrics.

The appeal argued that threats to repayment are in the future and that the borrower has sufficient medium-term liquidity to justify a special mention rating.


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

The appeals panel determined that the borrower’s significant decline in revenue, high leverage, and projected inability to amortize total debt over a reasonable time frame are well-defined weaknesses warranting the substandard classification. Projections reflect substantial declines, as compared to historical results, in revenues and earnings for 2016–2020. Projections also reflect that the borrower will not produce sufficient free cash flow to cover fixed charges in 2016, and continued reductions in the borrower’s cash position are projected through 2020. The appeals panel determined that the borrower’s recent actions to secure an additional revolving credit to strengthen liquidity do not mitigate the well-defined weaknesses.