The share of low-rated commitments in the Shared National Credit portfolio rose slightly between 2018 and 2019, according to the SNC Review released today. The SNC portfolio is a bundle of large syndicated bank loans that includes credit facilities for 5,474 borrowers totaling $4.83 trillion. Total SNC commitments were up 8.9% year-on-year. Outstanding SNCs rose 12% to $2.35 trillion. U.S. banks held the greatest volume of SNC commitments at 44.4% of the portfolio, followed by foreign banking organizations at 33.5% and nonbanks at 22.1%.
While the banking agencies said the number of special mention and classified commitments remain elevated compared to similar previous economic periods, “a significant portion” of these lower-quality commitments are concentrated in leveraged loans. Nearly 60% of bank-owned leveraged loans were higher-rated or investment-grade, while just 6% of nonbank-owned leveraged loans were investment-grade. Nonbanks owned 64.9% of all special mention and classified SNC credits, while U.S. banks owned 19%.
“Agent banks’ risk management practices for leveraged loan commitments have improved since 2013,” the report said. “Agent banks are better equipped to assess borrower repayment capacity and estimate enterprise valuations while having improved other risk management practices.”
Agent bank-identified leveraged loans accounted for nearly half of all SNC commitments and for 83% of special mention commitments (which are non-classified commitments that examiners flag for concern). These loans were the primary contributor to the SNC portfolio’s combined special mention and classified commitment rate of 6.9 percent. (This includes all commitments rated special mention, substandard, doubtful and loss.)