Debt carrying loose protections will dominate Europe’s leveraged loan market next year, Moody’s Investors Service said.

Sales of so-called covenant-loose loans rose to 56 percent of deals this year from 43 percent in 2014, according to a report by analysts led by Martin Chamberlain. 

Hedge funds, institutional investors and credit funds are shifting to the loan market as an alternative to high-yield bonds and are willing to accept similarly weak protections, Moody’s said. Sales of euro-denominated speculative-grade bonds dropped 9.2 percent to 56.3 billion euros ($61 billion) this year, from a record in 2014, according to data compiled by Bloomberg.

“We’re seeing a lot of investors who would have invested in high-yield bonds not able to access the high-yield bond market because of a reduction in the volumes of transactions in 2015,” said London-based Chamberlain. “Some investors are willing to accept term loans incorporating weaker financial covenants because of the looser documentation they have become comfortable with in the high-yield bond market.”

Issuance of covenant-lite loans, which carry even fewer protections, shrank to 26 percent from a peak of 43 percent last year, Moody’s said.

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