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Appeal of Shared National Credit (Third Quarter 2022)


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


The appeal asserted a substandard rating is more appropriate. The appeal contended the company’s organic performance through the first half of 2022 indicated continued lagging of the underlying business recovery, which in the context of elevated uncertainty due to recessionary pressure, supports a substandard rating. The appeal stated revenues included non-recurring items, which overstate organic growth and operating performance. The participant bank projected repayment of 55 percent of total debt over seven years but noted unpredictability and cyclicality in earnings that do not support elevated leverage.

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 2013-9, “Leveraged Lending: Guidance on Leveraged Lending”


An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned rating of pass based on satisfactory primary source of repayment, liquidity, and financial performance to plan. For the trailing 12 months ending June 30, 2022, free cash flow and the fixed charge coverage ratio was satisfactory without the inclusion of non-recurring revenues. A satisfactory liquidity position further supported the pass rating. Revenue and earnings before interest, taxes, depreciation, and amortization, after excluding non-recurring items for the six months ending June 30, 2022, reflects the company is on track to meet year-end performance projections. Reasonable projections from the agent bank reflected the ability to repay over 50 percent of total debt within seven years.