We believe it is still the preference for private equity sponsors to partner with the trust of lender, rather than reliance on syndicate group complete transactions. I believe we have seen the turn in credit quality, as many of our problem assets have been restructured or sold. Category 3.5 securities now account for approximately 5% of the portfolio at fair value as of December 31, 2010. And with our proactive portfolio management approach, we expect that percentage to continue to decline over the next year.
Investing environment is changing as highlighted in our recent news letters. While our rates continued to get – while rates continue to get compressed with the $20 million plus EBITDA sponsor buyouts, premiums are still being paid for the one-stop approach in for our relationships. In addition, we primarily are still in the $10 million to $20 million EBITDA market, with an average deal size closer to the $10 million EBITDA number, allowing us premium in the mid to lower middle market versus the upper market.
We were fortunate that the vast majority of our portfolio took advantage of the high return environment, and we were one of the few BDCs that had ample capital to invest during the credit dislocation. We expect that our vintage 2008 and beyond credit portfolio will generate strong returns as the economy continues to recover, even though we’ve recognized ultimately that many of these investments which were generated at high premiums relative to today’s market may get refinanced over the coming years which will generate an income boost when that happens.