Appeal of Shared National Credit (First Quarter 2017)

Background

A participant bank appealed the troubled debt restructure (TDR) designation assigned to a senior secured reserve-based revolving credit facility during the first-quarter 2017 Shared National Credit (SNC) examination.

Discussion

The appeal contended that the TDR designation is not appropriate as there was no modification or concession provided by the bank group. The appeal asserted that the short-term limited waivers and the nonconforming borrowing base were temporary accommodations and did not rise to the level of a modification. The appeal stated that the commitment reduction, additional collateral, and improved credit terms were adequate compensation for the flexibility the secured creditors provided to the borrower.

Conclusion

An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned TDR designation, as the borrower was experiencing financial difficulty and the bank group granted a concession.

The borrower defaulted on an interest payment to unsecured creditors and entered into a forbearance agreement with the bank group. After two extensions of the forbearance agreement, the borrower filed for bankruptcy.

The borrower was experiencing financial difficulty as evidenced by the interest payment default. The bank group provided concessions in the form of a nonconforming borrowing base, limited waivers on the interest payment default, and two extensions of the forbearance agreement to allow time for the borrower to negotiate a restructure with the unsecured lenders. The appeals panel concluded that the credit enhancements provided as part of the modification were not adequate compensation for the concessions granted.