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Appeal of Shared National Credit (First Quarter 2021)


A participant bank appealed the substandard risk rating assigned to a non-revolving line of credit during the first quarter 2021 Shared National Credit (SNC) examination.


The appeal asserted that a pass rating is more appropriate. The appeal acknowledged COVID-19 impacted the borrower; the appeal indicated, however, that the impact only affected the timeframe for the project to achieve its originally forecasted performance levels. Other than construction delays, the appeal asserted that the loan performed as agreed since its origination. Specifically, the appeal noted the credit's low loan-to-value, satisfactory interest reserve to support near term interest carry, strong sponsor support, strong guarantor liquidity and net worth, and satisfactory projected debt service coverage as support for the 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, "Commercial Real Estate Lending" (January 2017)
  • 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 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 substandard rating. The borrower's weak primary source of repayment, weak performance to plan, and high refinance risk were well-defined weaknesses. COVID-19 adversely impacted the project's ability to achieve stabilization and net operating income (NOI). Although construction is near completion, the projected completion date was delayed and stabilized occupancy and NOI are not expected in the near future.