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Appeal of Shared National Credit (SNC)-(Second Quarter 2016)


A participant bank appealed the special mention ratings assigned to several term and revolving loans, originated to a single borrower, during the February 2016 SNC examination.


The appeal asserted that all of the credits should be rated pass. The appeal argued that the borrower’s underperformance as compared to budget is primarily a result of foreign exchange (FX) volatility and does not impair long-term repayment capacity.

The appeal asserted that the borrower has a strong market position, a stable financial profile, and predictable revenue driven by long-term, stable contracts.


The interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned risk ratings of special mention.

The appeals panel concluded that key potential weaknesses supporting the special mention rating are the company’s high leverage coupled with recent underperformance compared to plan, resulting in downward revisions to projections. In addition to FX volatility, underperformance is attributed to increased regional operating expense, unfavorable customer response to price increases, and weather-related issues. The company made an unanticipated draw on the revolving credit facility, and liquidity is centered in the remaining availability. The projected fixed charge coverage ratio is at or just above 1.0 times for the full forecast period, further impacting financial flexibility.