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Appeal of Shared National Credit (Third Quarter 2020)


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


The appeal asserted that a substandard rating is more appropriate. The appeal acknowledged the obligor’s strong liquidity position but held a more conservative view of financial projections, including the length and severity of impact to operations from COVID-19. The appeal asserted that weaknesses in current operations and a more conservative view of the projections demonstrated lack of a reasonable prospect to deleverage, as well as nominal repayment capacity.

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 overturned the pass risk rating assigned by the SNC review team and assigned a special mention risk rating. The obligor’s marginal repayment capacity and adverse operating trends attributable to COVID-19 restrictions were potential weaknesses that may result in deterioration of repayment prospects at some future date.

The appeals panel concluded that weaknesses in current and projected repayment capacity, coupled with satisfactory liquidity, more accurately reflected a potential weakness in the obligor’s overall repayment capacity. In addition, while liquidity was satisfactory and sufficient to cover projected cash burn and debt maturities over the short term, it did not fully mitigate weaknesses in the obligor’s capacity to repay debt through positive operating cash flow during the short term. The appeals panel concluded that liquidity sufficiency was dependent on the length of COVID-19 restrictions and the obligor’s ability to meet projections.