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Appeal of Shared National Credit (Third Quarter 2020)


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


The appeal asserted that a pass rating is more appropriate. The appeal contended that the obligor was impacted by COVID-19, but pointed to evidence indicating that the negative impact was transitory. Specifically, the appeal stated that the obligor mitigated COVID-19-related stress by rapidly taking strategic and cost-cutting actions to successfully respond to the impact to financial performance. The appeal also emphasized the obligor’s positive free cash flow (FCF) and strong balance sheet position as support for a pass rating. In particular, the appeal noted the obligor’s year-over-year fixed charge coverage ratio improvement. The appeal further cited improved projected repayment, supported by a rapid recovery from COVID-19, with the ability to repay 73 percent of total debt over a seven-year projection period.  

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 agreed with the bank and assigned a pass risk rating.

The appeals panel concurred with many of the observations noted in the appeal, including satisfactory operating cash flow. The appeals panel acknowledged that the obligor’s historical and expected performance over the short term supported adequate debt repayment capacity. The appeals panel noted satisfactory liquidity and acknowledged the obligor’s actions to adjust its cost structure to eliminate the significant cash burn that occurred during the beginning of the pandemic. In addition, an increase in equity and a pay-down of the credit facility reduced the total debt load to further support sufficient repayment capacity.