European leveraged loans with fewer protections have exceeded 50% of the debt backed by institutional investors this year, according to rating agency Standard & Poor’s, as it warned that investors in riskier assets may face significant problems if liquidity dries up.

S&P said in a report on the European leveraged loan market today that €3.3 billion, or more than half of the €6.5 billion of European leveraged loans which included a tranche held by an institutional investor, were so-called "covenant-lite" in January and February. Total European leveraged loan issuance in January and February stood at €11.1 billion.