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A participant bank appealed the special mention risk rating assigned to a revolving credit during the first quarter 2021 Shared National Credit (SNC) examination.
The appeal asserted that a pass rating is more appropriate. The appeal contended COVID-19 impacted the borrower but indicated that the negative impact was temporary. The appeal further asserted that the borrower's financial performance materially improved in the second half of 2020, substantially recovering from the lows of the second quarter 2020. The appeal also emphasized acceptable leverage at year-end 2020 based on fourth quarter annualized financial performance, strong liquidity, as well as a stable outlook for free cash flow and further deleveraging in 2021. Finally, the appeal noted the borrower's proven access to capital markets with no near-term maturities and favorable credit ratings as additional support for a pass rating.
The interagency appeals panel conducted a comprehensive review of the information submitted by the bank and relied on the supervisory standards outlined below:
An interagency appeals panel of three senior credit examiners agreed with the bank and assigned a pass risk rating. The appeals panel concurred with many of the observations noted in the appeal, including satisfactory operating cash flow, manageable leverage, and the positive outlook for further deleveraging in 2021. Updated projections indicated repayment of a substantial majority of total debt within seven years. In addition, improving cash flow resulted in significant reductions in the outstanding revolving line of credit balance during the second half of 2020.