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Appeal of Shared National Credit (Third Quarter 2021)


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


The appeal asserted that a pass rating is appropriate. The appeal contended that although operating performance was limited, the borrower’s leverage ratio is projected to decline. The appeal pointed to projected improvement in operating performance and a fixed contract backlog of a material dollar amount to support the proposed pass rating. Finally, the appeal contended that several extraordinary items negatively affected the company’s performance in early 2021.

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 2020-35, “Trouble Debt Restructuring: 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 regulatory rating of substandard based on the borrower’s weak primary source of repayment and high leverage. Although improved commodity prices, increased demand, and lower expenses have a positive impact on operating performance and cash flow, available financial information does not indicate that projected repayment capacity has improved to a satisfactory level.