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Appeal of Shared National Credit (First Quarter 2022)


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


The appeal asserted that a special mention rating is more appropriate. The appeal specifically noted underperformance to plan in 2021, lower projected earnings for 2022 and 2023, and a requested covenant amendment as supporting factors for the special mention rating. Based on earnings guidance adjusted February 2022, the participant bank projects 53 percent paydown of total debt over seven years under an alternative forecast based on conservative assumptions.

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, “Leveraged Lending: 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 SNC review team’s originally assigned pass rating based on the borrower’s satisfactory primary source of repayment, moderate leverage profile, and sufficient liquidity. The obligor corrected the adverse operating trends that emerged in 2020 with the successful integration of a significant business acquisition and reduced risk from the COVID-19 disruptions. Year-end 2021 cash flow covered fixed charges, including deferred 2020 capital expenditures. The unadjusted base case financial projections reflect steady improvement in fixed charge coverage, repayment of more than 50 percent of total outstanding debt within seven years, and declining leverage. Year-end 2021 leverage (total outstanding debt to adjusted earnings before interest, taxes, depreciation and amortization) was manageable and is projected to decline further by 2024. Liquidity is satisfactory with sufficient balance sheet cash and availability on the revolving credit facility. Further, the participant bank’s February 2022 adjusted debt repayment capacity would still remain sufficient at more than 50 percent of total outstanding debt within seven years.