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Appeal of Shared National Credit (First Quarter 2021)


A participant bank appealed the special mention risk rating assigned to a revolving credit during the first quarter 2021 Shared National Credit (SNC) examination.


The appeal asserted that a pass rating is more appropriate. The appeal contended COVID-19 impacted the borrower but indicated that the negative impact was temporary. The appeal further asserted that the borrower's financial performance materially improved in the second half of 2020, substantially recovering from the lows of the second quarter 2020. The appeal also emphasized acceptable leverage at year-end 2020 based on fourth quarter annualized financial performance, strong liquidity, as well as a stable outlook for free cash flow and further deleveraging in 2021. Finally, the appeal noted the borrower's proven access to capital markets with no near-term maturities and favorable credit ratings as additional support for a pass rating.

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, "Oil and Gas Exploration and Production Lending" (October 2018)
  • Comptroller's Handbook, "Rating Credit Risk" (April 2001, updated June 2017 for nonaccrual status)
  • 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 with 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 agreed with the bank and assigned a pass risk rating. The appeals panel concurred with many of the observations noted in the appeal, including satisfactory operating cash flow, manageable leverage, and the positive outlook for further deleveraging in 2021. Updated projections indicated repayment of a substantial majority of total debt within seven years. In addition, improving cash flow resulted in significant reductions in the outstanding revolving line of credit balance during the second half of 2020.