25 Feb Agencies – Issued the Shared National Credit Review
February 25, 2021 – Agencies issued shared national credit (SNC) review reports, for 1Q 2020 and 3Q 2020. Report results primarily cover loan commitments originated before June 30, 2020.
SNC Report Highlights
By volume, $5.1 Trillion in commitments in 2020; up $242 Billion (5%), 3Q 2019 to 3Q 2020. SNC credit risk contextualized by the impact of Covid, on the financial ecosystem and borrower behaviors and economic situations thereby driving substantial defaults and downgrades. Risk management frameworks, implemented as a response to the global financial crisis, are tested by the overlay of stress to the financial system. Increase in non-pass commitments, the result of industries heavily affected by the pandemic. These are entertainment, recreation, oil and gas, real estate, retail, and transportation. Leveraged loan credit risk increasing and high, comprises near 50% of SNC population. Ill-structured, with layered risks, include weak covenants, and strict repayment terms. Further, broad permissible items for borrowers to increase debt, and drawdown facilities. While bank entities hold investment-grade leveraged loans, non-banks seek investor returns, holding non-investment grade, non-pass leveraged commitments, and loan terms. Stress testing to consider current portfolios/behavior differ from historical precedent.
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