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Appeal of Shared National Credit (Third Quarter 2022)


The agent bank appealed the substandard rating assigned to a revolving credit and term loan during the third quarter Shared National Credit (SNC) examination.


The appeal asserted a special mention rating was appropriate and more accurately reflected the obligor’s worth, repayment capacity, probability of default, and overall quality of the asset. It noted a debt service coverage over one times for the trailing 12 months as of June 30, 2022, and stated that the company’s recent performance demonstrated a seven-year debt repayment slightly below 50 percent. The appeal stated the company is a leader in its industry and has demonstrated increased profitability quarter over quarter as of June 30, 2022.

Supervisory Standards

An 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, “Leveraged Lending: Guidance on Leveraged Lending”
  • OCC Bulletin 2020-64, “Examinations: Interagency Examiner Guidance for Assessing Safety and Soundness While Considering the Effect of COVID-19 on Institutions”


An interagency appeals panel of three senior credit examiners concurred with the SNC examination teams originally assigned substandard rating based on the borrower’s weak primary source of repayment and high leverage. Fiscal year 2023 projections reflected cumulative free cash flow available to repay less than 50 percent of outstanding debt over seven years. The fixed charge coverage ratio as of trailing 12 months ending March 31, 2022, was low at slightly above one times and demonstrated operations could not support the borrower’s high leverage. Inadequate debt repayment capacity and marginal capitalization are common characteristics of substandard assets.