Melissa Wedel: Got it. Thank you.
Operator: Thank you. [Operator Instructions] Thank you. Our next question comes from the line of Erik Zwick from Hovde Group.
Erik Zwick: Good morning, all. Just a quick follow-up on the pipeline. I’m curious, as you look at it today, if there are any particular industries that are either comprising a larger share or look particularly attractive and kind of on the flip side, if there’s any industries that you’re cautious are shying away from today?
Joshua Easterly: Yes. So good question. Look, I think there’s — I would frame it as a couple of ways. I think there are — in 2024, I’m more hopeful that our [Technical Difficulty] company about that balance sheet opportunity set, which has historically been a kind of wane for us will come back. We’re working on a couple of things that we think will provide good risk-adjusted returns that are complicated. So I think that’s one theme. That is a theme. So good companies got balance sheets, capital structures that were put in place in a zero rate environment that’s no longer a zero rate environment. The second theme is, we have done actually more industrial and industrial services in the recent and I think last quarter and this quarter that will show up in the book.
And so we like those businesses. We think they’re kind of at mid-cycle slightly, maybe above mid-cycle earnings that are under writable. There’s certainly not at peak earnings. And so — and we like have the dynamics there. Retail cash flow deals still we don’t love, but retail, hopefully, will be another good opportunity for us. The consumer continues to shift wallet share. I think you saw the negative print earlier this week on retail sales shifted from goods to experiences, the balance sheet for void during COVID, given the consumer can only spend their excess savings on goods. They’re coming back down to earth. So I think that’s going to be a good opportunity. And then we’ll continue to operate in our sector themes such as software, et cetera.
But I do think you’ll be more industrial, I do think you’ll see the more complicated transactions show back up in 2024.
Erik Zwick: That’s great color. I appreciate it. Thanks for taking my question.
Joshua Easterly: Of course.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Robert Dodd from Raymond James.
Robert Dodd: Good morning, everyone. So first one, maybe simple, maybe I missed it. Can you give us, Ian, for the ROE and the earnings guidance? What forward curve is factored into that? I mean today, it’s three cuts, a month ago, it was six cuts. I think can you give us an indicator of what you’ve got factored into that?
Joshua Easterly: I think the exact page by the way, which we got some help earlier. It was probably a week ago or what was last Tuesday was the forward curve we used and rates are slightly up from there. But yes, the forward curve has been very, very tricky. But we use the forward curve as of last Tuesday and I think rates fall off a little bit or up from there. But — is that helpful. yes.
Robert Dodd: Got it. Got it. Thank you. And then I think in your prepared remarks, you said — I mean, there was some refinancing activity already in or repricing, I don’t know the wrong word in the fourth quarter, but those were ‘21, ‘22. So they did generate accelerated income, but not as much. If spread — can you give us an idea of what you’re thinking about how it could play out in ‘24? I mean if spreads do come in, did the ‘23 start refinancing your spreads to tighten up, which would generate considerably more income if they’re younger versus older, I mean any import from that?
Joshua Easterly: Yes. look, I think it’s a great question. Obviously, there’s more OID, unamortized OID and call protection in the ‘23 versus the older vintages. So do you have that right. So you most definitely can see that happen. That has not modeled in. What you might have picked up in our guidance is that the dispersion is higher. I think this year, in our guidance as it ever has been before.
Ian Simmonds: That’s right.
Joshua Easterly: And it’s because of the things that we’re talking about on the last three questions. One is this more — there’s more volatility on the curve. We’ve got two big moves this past week. There are spreads and prepayment penalties. What I would say is in our base at whatever, $0.28 per share. We don’t have that much in on accelerated OID in prepayment fees. It’s like $0.13 per share. So I don’t know the disperse of wider for sure, our guidance moves wider for sure. And because the environment seems still continues to be volatile.
Robert Dodd: I appreciate that the cover that. I mean if the market is highly active $0.13 in one quarter, but I’ll just leave I think guidance. You’re typically pretty conservative. So understood. Thank you.
Joshua Easterly: Thanks, Robert.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Maxwell Fritscher from Truist Securities.
Maxwell Fritscher: Hi, good morning. I’m calling in today for Mark Hughes. Are you seeing any more competition in winning deals from the stepped-up fundraising and direct lending that Bo had mentioned particularly if the broadly syndicated market becomes more competitive?
Joshua Easterly: Yes. I mean, look, there’s most definitely more competition and there has been more capital raise. I think the overall, whatever you want to call capital — credit dry powder as compared to private equity dry powder, and I’m not a big — I don’t love that kind of theme because the movers in time, it doesn’t always play out, but that so holds. But there’s most definitely more competition. I think the good news is the bad news is that the asset class has been credentialized because it’s provided a decent or a good risk-adjusted return for all different types of allocators and investors, but that leads to more competition. And so we’ll continue to really need to adapt and evolve and iterate we can continue to provide, a, a great product service to our issuer with speed and certainty and understanding their business and also make sure we do that for shareholders and stakeholders. So they’re most definitely more competition.
Maxwell Fritscher: Got it. That’s helpful. Thank you. And so in the quarter for the new funding, there was a small step-up in equity investments. And I was just wondering if there’s anything there or if that’s just normal course of business.
Joshua Easterly: Normal course.
Bo Stanley: I think there was some idiosyncratic to invest, but it’s a normal level of activity. Yes.
Joshua Easterly: Yes. I mean, look, I think part of what we try to be, we’re investors. And if we — if there’s a chance to make a small equity go that really created for shareholders, we’ll do it on businesses we like. We — our model is don’t do on everything. We’re investors. So sometimes there’s equity stories we understand and we can underwrite and sometimes it’s not. And — but when we can, we’ll put small pieces on the balance sheet.
Maxwell Fritscher: Got it. Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Ryan Lynch from KBW.
Ryan Lynch: Hey, good morning.
Bo Stanley: Hey, good morning.
Ryan Lynch: First question I had was we’ve seen some of the data of some of the purchase price multiples coming down for new transactions as I think private equity is finally starting to want to exit investments return capital. I’m just curious — have you seen the same decline in leverage levels on those transactions that you guys are seeing in the market, whereas the loan to value on those businesses, which have been very low over the last year would still be in that same level. And the other question on that is our loan to values staying low. Is that really — is that important to you? Or is it more important just the absolute leverage levels on these businesses versus the equity checks and loan to values?
Joshua Easterly: Yes. First of all, it’s a good. Look, I think valuations are all over the place. I don’t — I think we see them all over a place. I think generally, they’re down. They should be down. Discount rates are up. So if you take a series of cash flows and you apply a higher discount rate to them, you’re going to end up with a lower NPV. That lower NPV over the same current EBITDA or operating cash flow number is going to be lower. So I think generally, valuation should be down directionally because of the discount rates, weighted average cost of capital has most definitely gone up given the move in treasuries. When we think about — and then I would say, given the move in, again, with three companies have less, generally speaking, have less capacity to take on debt and service debt given the higher interest cost.
And so I think you most definitely have seen all those things. And I think LTVs are pretty stable. I would say — the one thing I would frame up on LTVs is we don’t look at LTVs. We look at LTVs, but through our lens, which is what do we think the business is actually worth. That may be consistent with what the sponsor is paying for it or not being for it. And we don’t really get a whole bunch of comfort on the size of the equity check because they have a different kind of risk return profile than we do. We’re kind of always short. We’ve written a call option, and we’re sort of put and they don’t have that dynamic. So I would say — and I know I went deep, I would say we look at LTVs is through lens, debt capacity is down because the rates are up, LTVs are pretty stable and valuations are slightly down, but they’re all — they continue to be all over the place.
Ryan Lynch: Okay. That’s helpful color. The other question I had is with the market with BSL starting — that market is starting to pick back up. I’m just curious — are you seeing any sort of new terms that are coming in to do deals that direct lenders are implementing in order to win deals. We’ve seen read and heard things like portability and things like that being put into to new deals. Are you seeing any sort of like unusual terms or terms kind of reemerge that you guys aren’t super comfortable with in order for lenders to win deals as they’re now more competing with the BSL markets?
Joshua Easterly: Well, look, I don’t know if it’s a BSL thing. I mean, I think we fall terms getting — generally giving looser because there was a whole much more private credit raise in the last 6 months or years. So I think terms generally have weakened, I think you have to look at it in the context of a idiosyncratic credit. And so is there more kind of light screen, springing covenants on revolver draws in large-cap private credit, yes. But I think the market does an okay job, deep in job of making sure it’s for the right credit. So most definitely in terms are continued, let’s say, weakened, but continue to evolve. And that’s part of hopefully what we bring to table being able to underwrite and make those decisions. Bo, anything to add there?
Bo Stanley: I think you hit it. It’s — what I would say is even though document in terms are loosening, I think they’re still on the margin better than they were kind of in the late cycle peak-ish levels in 2020, 2021. But with more competition will mainly from the direct lending market. You’re seeing the general loosening of terms. We typically only play in deals, in fact, the only planned deals where we have a seat at the table and documentation, and we will not do deals if there’s provisions that we’re not comfortable with.
Ryan Lynch: Okay. I just had one last one for me. You guys have never been — you guys have always not been a been willing to step into some complex deals in the past. You guys have certainly done some asset-backed deals that have been complex. I’m just curious, do you have any sort of expertise across the platform and/or any desire for any transactions in the real estate space that could ever reach into TSLX’s bucket, whether that’s a direct loan. Obviously, there’s going to be a lot of pieces to pick up in that space. It could be an opportunity. But I’m just not sure if you have that expertise or decide or whether it’s a direct loan or even I know in the past, you’ve played in some of the structured products with CLOs, maybe it’s a structured product in that space. Just curious what’s the appetite there and expertise in that area.
Joshua Easterly: Yes. We have tons of averted. We’ve invested billions abilities to billions of dollars in real estate. That was a large theme post the global financial prices the people might have read one of my long-time friends and colleagues at Goldman’s came on, Julian Fultzberry, co-CIO, with Alan and myself across the platform. He’s most definitely continue to focus on real estate and building out the expertise or augmenting the exercise we already have. As it relates to does it fit in SLX, we’ll have to get some thought into that. But we’re sure we have the expertise, and we surely think it’s going to be a unique area. Obviously, that is a bad asset. And so — and that’s a concrete bucket for us. I mean it’s not constrained now, but it’s a constrained resource. And so we’ll also figure that out.
Ryan Lynch: Okay, makes sense. That’s all from me. I appreciate the time today.
