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Appeal of Shared National Credit (Third Quarter 2020)


A participant bank appealed the substandard risk ratings assigned to a revolving credit and one of two term credits during the third quarter 2020 Shared National Credit (SNC) examination.


The appeal asserted that a special mention rating is more appropriate. The appeal acknowledged the obligor’s challenging operating environment due to COVID-19 restrictions and the significant cash burn it experienced in 2020. The appeal listed actions the obligor took to mitigate COVID-19 pressures, including cost reduction initiatives and capital protection. The appeal asserted that projections prepared by the participant bank demonstrated that projected revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) was sufficient to repay 59 percent of total debt over a seven-year projection horizon.

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 concurred with the substandard risk rating assigned by the SNC review team. The obligor’s weak performance to projections, weak repayment capacity, and high leverage were well-defined weaknesses that jeopardized the liquidation of debt.

The appeals panel noted that financial performance, following an acquisition, was materially behind projections and was further impacted by the onset of COVID-19. Current operating performance and the agent bank’s financial projections reflected inability to repay debt in a reasonable time period. Specifically, projections indicated fixed charge coverage remaining below 1.0x for the short term and repayment of total debt over seven years at only 33 percent. The appeals panel also concluded that leverage was high and not projected to materially improve in the near term.