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Appeal of Shared National Credit (Third Quarter 2021)


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


The appeal asserted that a special mention rating is appropriate. The appeal contended that the trailing 12-month (TTM) revenue and earnings, before interest, taxes, depreciation, and amortization (EBITDA) were negatively (and inappropriately) skewed because of the inclusion of financial results during a period when performance was down due to COVID-19. The appeal pointed to various metrics that improved in the second quarter of 2021, including EBITDA that exceeded levels reported in the quarters before COVID-19. The appeal also contended that the borrower’s weak performance to projections was expected because of difficulty projecting the impact from COVID-19. Finally, the appeal did not dispute the high leverage but contended that it was driven by temporary weakness in cash flow.

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, weak performance to plan, and high leverage. Although interim financial performance improved, free cash flow was negative for the six months and TTMs ending June 30, 2021. The borrower underperformed relative to 2020 projections and revised projections downward in early 2021 to capture continued operating stress that projected negative free cash flow extending through year-end 2021.