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Appeal of Shared National Credit (Third Quarter 2020)


A participant bank appealed the substandard risk rating assigned to a revolving credit during the third quarter 2020 Shared National Credit (SNC) examination.


The appeal asserted that a special mention rating is more appropriate. The appeal contended that while the obligor’s operations were significantly impacted by COVID-19, its response to restructure the business and preserve liquidity mitigated weakness in the repayment capacity and the high leverage position. The appeal also emphasized the belief that the peak impact of COVID-19 had passed and there was clarity on future demand. The appeal argued that while close monitoring was still required, the obligor had taken swift measures to generate improved earnings before interest, taxes, depreciation, and amortization (EBITDA).

Supervisory Standards

The 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 2013-9, "Guidance on Leveraged Lending"
  • OCC Bulletin 2014-55, "Frequently Asked Questions for Implementing March 2013 Interagency Guidance on Leveraged Lending"
  • OCC Bulletin 2020-35, “Troubled Debt Restructurings: Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by COVID-19 (Revised)”
  • 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 substandard risk rating assigned by the SNC review team due to well-defined weaknesses evidenced by weak performance to plan, weak repayment capacity, and high leverage.

The appeals panel acknowledged that the obligor responded appropriately to stressed financial performance brought on by COVID-19, but determined that those actions did not sufficiently mitigate the well-defined weaknesses present. The appeals panel cited the following well-defined weaknesses: a fixed charge coverage ratio well below 1x, a repayment capacity of total debt of 34 percent over seven years, and a high leverage ratio that is not projected to materially improve in the near term. The appeals panel determined that while liquidity support provided by the undrawn revolving credit facility was adequate, the revolving credit availability was limited by issued letters of credit.