Skip to main content
OCC Flag

An official website of the United States government

Appeal of Shared National Credit (First Quarter 2019)


An agent bank appealed the special mention rating assigned to a revolving credit and two term loans reviewed during the first quarter 2019 Shared National Credit (SNC) examination.  


The appeal asserted that a pass rating is more appropriate. The appeal contended that the synergies of the combined entity were tangible and realizable in the near term and resulted in the projected repayment capacity for the merged entity of 60 percent of total outstanding debt within seven years, lower leverage, and a stronger market position. The appeal acknowledged that the projections included significant synergy adjustments and operating margins that exceeded the historic performance of the respective companies on a standalone basis, but asserted that the obligor’s successful record of acquisition integration reduced execution risk.

Supervisory Standards

The 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 examination team’s originally assigned rating of special mention due to elevated execution risk and high leverage that are potential weaknesses that may result in deterioration of the repayment prospects at a future date.  

The appeals panel determined that the financial projections assumed operating performance that was well above historical standalone operating results predicated on margin enhancements, the realization of run-rate synergies, and material reductions in capital expenditures. Given the short duration of combined operations, the appeals panel had insufficient evidence to assess the reasonableness of the financial projections, but noted that margins were lagging projections. The appeals panel concluded that pro forma leverage (total outstanding debt divided by earnings before interest, taxes, depreciation, and amortization adjusted for nonrecurring, noncash charges, and projected synergies) was high at 5.4 times for the period reviewed.