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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 continued substandard rating is more appropriate. While the appeal acknowledged improved financial performance metrics, it noted well-defined weaknesses in the company’s credit profile, which include weak ability to generate free cash flow (FCF), lack of improvement in repayment metrics, and high 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. The primary source of repayment improved to a satisfactory and sustainable level. Revenue and adjusted earnings before interest, taxes, depreciation, and amortization increased year-over-year and exceeded projections. Cumulative FCF reflects repayment capacity of greater than 50 percent of total outstanding debt over seven years. In addition, FCF was more than sufficient to cover fixed charges for the trailing 12 months ending March 31, 2022. Financials statements as of June 30, 2022, reflected sufficient cash liquidity and revolving credit availability to further support operations.