In this era of ultra-tight spreads, a first lien loan with a 650 basis point over Libor coupon is like a diamond in the rough. This is why Delphi Corp.'s $1 billion term loan - which not only priced at Libor plus 650 basis points, but it was also sold at an original issue discount of 99.5 - broke to trade in the 103 context and traded up after the company filed for bankruptcy, as loan investors were expected to net a full recovery.

Delphi's loan may be beneficial for investors in more ways than one, however, as the deal is maintaining the weighted average spread test for some CLO managers. The spread test has been a challenge for some fund managers, especially for those with older vintage CLOs. According to Standard & Poor's, 45% of 2001 vintage CLOs and 40% of 2000 vintages are failing their spread requirements.

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