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Appeal of Shared National Credit (Third Quarter 2022)


A participant bank appealed the special mention rating assigned to a revolving credit during the third quarter Shared National Credit (SNC) examination.


The appeal asserted that a pass rating is appropriate given the company’s ability to repay 70 percent of total debt and 167 percent of total senior secured debt over seven years (based on participant bank’s projections) and strong liquidity as of June 30, 2022. The appeal noted that these factors provide stability and outweigh weaknesses.

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 2020-64, “Examinations: Interagency Examiner Guidance for Assessing Safety and Soundness While Considering the Effect of COVID-19 on Institutions”
  • OCC Bulletin 2013-9, “Leveraged Lending: Guidance on Leveraged Lending”


An interagency appeals panel of three senior credit examiners concurred with the SNC examination team’s originally assigned special mention rating. Potential weaknesses include the borrower’s marginal primary source of repayment, marginal performance to plan, and moderate leverage. Reasonable projections reflect cumulative free cash flow available to repay slightly over 50 percent of outstanding debt over seven years. However, the ability to achieve projections remained uncertain given marginal historical performance to plan coupled with high execution risk of recent strategic pricing initiatives. Leverage (total debt divided by adjusted earnings before interest, taxes, depreciation, and amortization expenses) is moderate and projected to slightly increase by year end 2022. The panel acknowledged the borrower’s liquidity levels but determined it did not fully mitigate the potential weaknesses in the primary source of repayment.