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Appeal of Shared National Credit (First Quarter 2023)


A participant bank appealed the pass rating assigned to the revolving credit during the first quarter Shared National Credit (SNC) examination.


The appeal asserted a special mention rating is more appropriate. The appeal contends elevated leverage, insufficient coverage of fixed charges, and unsustained marginal free cash flow support a special mention rating. The appeal also noted limited improvement in operating trends since the subject credit’s rating of special mention during the last SNC review. The appeal stated the borrower had not reached the appealing bank’s upgrade triggers for leverage, free cash flow, and coverage of fixed charges.

Supervisory Standards

An interagency appeals panel conducted a comprehensive review of the information submitted by the banks 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 2020-64, “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 examination team’s originally assigned pass rating based on satisfactory primary source of repayment and liquidity. The panel noted material improvements in the company’s operating performance and recovery following the COVID-19 pandemic, resulting in a satisfactory and sustainable repayment capacity. Examiner calculated fixed charge coverage ratio for the fiscal year was adequate. The fixed charge coverage ratio varied from the appealing bank’s calculation due to a difference in assumption of how the company would repay current maturities. Projected cumulative free cash flow is sufficient to repay 90 percent of total outstanding debt over seven years. The company’s substantial liquidity position, consisting of cash, marketable securities, and undrawn revolving credit availability, provides additional support of near-term debt maturities and other general corporate needs. The risk-rating process is an independent assessment of the credit’s risk rating based on current available information. Individual bank’s internal rating triggers vary and are not relevant to the rating assessment applied by SNC voters or the appeal panel.