Bowen Diehl: Yeah. I would say generally — I would say what I’m trying to communicate is that really the way we look at the world hasn’t changed. And so, there’s underwriting certain industries has always been tricky industries where there’s higher fixed cost, lower margins. And then when you look at an economic backdrop or economic effect on the customers maybe the customers are making a capital investment decision, which results in your revenue at your portfolio company. Capital has become more expensive. CEOs across — you hear on news or whatever, CEOs are being more judicious or careful about capital investment decisions they’re making. And if you have a portfolio company that’s got whose customers are making capital investment decisions that would drive revenue, that would be an industry that we would shy away from as an example.
And then you throw on top of that industry, if you look at the margins on a portfolio of company, the split between fixed cost and variable cost is a really, really important metric to look at. The industry is going have more manufacturing, for example, that has — obviously, if you have a manufacturing plant, you naturally have higher fixed cost, right? So — and so those are tight industries that candidly, we shy away from, but also were the ones that are kind of tricky to underwrite. So — but at the same time, what I’m trying to communicate is really the way we look at the world hasn’t changed. We’ve been saying that since day one that we look at an extreme recession right after our loans made and trying to spell out for everyone kind of what that means in a financial model.
And so, we were — we’ve been thinking about the possibility of a recession for the last eight years because there’s always — you could have always along the way, maybe argument that were pretty long in the tube on this expansion. And in each year didn’t come, now we’re facing it potentially, but certainly a very advertised recession for good reason. And so in one sense, our underwriting hasn’t changed at all, except for higher base rates going into that model.
Michael Sarner: Yeah. The other thing I’d add as well is I think everybody probably have to deal with this is the COVID hangover. So looking at financials and seeing how far is that — the bounce back from 2021 and 2022 related to coming off the bottom of 2020 with COVID as well as now if you look at healthcare, sometimes you’re seeing flatter ups and COVID various places in the country. And so sometimes it’s difficult to underwrite what the run rate was before and whether the run rate is current as well today.
Bowen Diehl: COVID is an interesting example. So, looking at rather than EBITDA as a portfolio company, post-COVID, some industries have kind of pent-up demand, as we all know. So, the bounce back can be pretty extreme. And so it makes looking at kind of 2018 and 2019 performance and getting a sense as to what the pre-COVID level of performance was for a particular company. So that’s a little bit different than we were doing four years ago, for example.
Erik Zwick: That’s great color. I really appreciate that. And then my other question was just in your conversations with the PE sponsors that you work with. I’m curious if you’ve noticed any change and sentiment, certainly the industry data, I look at indicates there’s still a lot of dry powder there for them. Are they sensing potential recession and maybe keeping some dry powder on hand in the event that they’d have to commit extra equity to initial investments? Or are they still out there looking for — I’m sorry, to existing investments? Or are they still out there looking for new opportunities to the same level that they were 12, 18, 24 months ago?
