Armen Panossian: Yeah. Good question. So we are always looking at our portfolio in terms of assessing risk profile levered on a fundamental basis or on a levered free cash flow basis. I don’t have what percentage of our portfolio would be less than one times fixed charges, but it wouldn’t be much or any of the portfolio. And you’re right that the tail risk is the part of the market to look at — or the part of the portfolio to look at versus the average. But generally speaking, our portfolio is pretty lightly levered. And we do look at it on what our fixed charge ratio is and leverage profile is for sponsored versus non-sponsored versus publicly traded. And we’ve done a good job of managing leverage profile and fixed charge coverage to a point where we really don’t have meaningful watch-list names, and that’s evidenced by the fact that we don’t have anything on accrual.
So we’re watching it closely, but I wouldn’t — I don’t have anything to report to you to say like X-percent of our portfolio would fall below one times coverage if base rates stayed here for 12 months. We don’t have something like that to report at this time. But in the first part of your question, do I think that if inflation moderates, that some of this will reverse? It’s a great question. So I think, generally speaking, companies have increased prices, but at a slower clip than the increase in the cost of goods sold. Now for a reversal to occur, that means prices would need to decline in terms of the cost of goods sold, but the revenue side of the price equation would need to stay flat. Now there will be a period of time where that’s possible, where price increases are happening on a delayed basis, but cost of goods sold are stabilizing.
Generally speaking though, you don’t see a material reduction in cost of goods sold after an inflationary period. Inflation slows, but it doesn’t go negative, generally. In some industries, it could, sometimes building products like timber prices, steel prices, concrete prices may for a period of time decline, if demand declines. But I wouldn’t say, by and large, that that’s something that we would expect to see that a meaningful price decline in cost of goods sold that create an outsized profit earning opportunity. Now it’s hard to predict what happens in 2023 with inflation and rates. I do think that the pace of inflation is showing signs of slowing, that’s a good thing. It does point to a pivot at some point. However, the market seems to believe a pivot is going to happen in 2023.
I think that’s probably a little bit too rosy. I think the downside surprise here with the Fed is that they leave rates high for a little bit longer than what people expect to make sure that the inflationary picture is under control. So I wouldn’t bet on this outsized profit earning opportunity in 2023, but it could happen. I think stability is possible in late 2023 or more likely in 2024 with a more stable kind of supply-demand balance and cost of borrowing stability for most companies. So it’s coming, but I just don’t think it’s this year.
Ryan Lynch: Okay. That’s helpful. That’s all for me today. Appreciate the time.
Armen Panossian: Thank you.
Operator: And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Mosticchio. Please go ahead.
Michael Mosticchio : Thank you, Marliese, and thank you all for joining us on today’s earnings conference call. A replay of this call will be available for 30 days on OCSL’s website in the Investors section or by dialing 877-344-7529 for US callers or 1-412-317-0088 for non-US callers with the replay access code 6846351 beginning approximately one hour after this broadcast.
Operator: Thank you for attending today’s presentation. You may now disconnect.
