For its part, Millennium said the probe was disclosed to all "pertinent parties" at the time and was also cited in media reports and legal filings, according to Nicole Beckstrand, the company's spokeswoman. Yet nothing about the probe, such as its potential impact on Millennium's finances, was included in the official document that JPMorgan used to market the loan, four people with direct knowledge of the matter said.

Two loan investors, who asked not to be identified because they weren't authorized to speak publicly, also said neither JPMorgan nor Millennium mentioned the probe when the loan was pitched.

"It's very, very frustrating from the perspective that you don't know how much more they know that they're not telling you," said Shannan Murphy, an analyst at Standard & Poor's, referring to San Diego-based Millennium. "You can see why they might be sensitive surrounding talking around the events going on at that time."

JPMorgan wasn't required by law to disclose the probe to potential lenders because Millennium, controlled by private- equity firm TA Associates, told the bank it wasn't material at the time, said the person, who wasn't authorized to speak publicly.

JPMorgan spokeswoman Jessica Francisco declined to comment.

As more details began to surface in recent months, the fallout for holders, which include OppenheimerFunds and Fidelity Investments, has been disastrous.

Since May, the value of the debt plunged almost 60 percent partly on speculation a possible $250 million fine to settle the probe will deplete Millennium's cash. That's put the loan at similar price levels as those issued by firms that are either in default or facing bankruptcy.

It's not only the lack of disclosure that's stung holders. Blacklists are a hallmark of the loan market, and Millennium stood out for compiling one that prohibited dozens of big-name funds from buying the loan through its maturity, according to people with knowledge of the matter.

The company also blocked would-be investors from getting their hands on its financial data for weeks as the loan plummeted, they said.

Creditor Negotiations

That meant some Millennium lenders that wanted out were effectively trapped in the loan as prices tumbled to just 42.8 cents on the dollar from above par in April.

The company, which recently hired Lazard Ltd. and law firm Hogan Lovells to advise it on potential negotiations with creditors to reduce its debt, according to people familiar with the matter, has benefited from the loan.

The borrowing funded a $1.27 billion dividend to Millennium's management team and TA Associates, which own the company. It also paid off $195 million of debt that TA Associates held.

Spokeswomen for TA Associates and Lazard declined to comment. A representative for Hogan Lovells didn't return telephone or e-mail messages seeking comment.

Though the loan market caters strictly to professionals, its influence increasingly extends to ordinary Americans. With rock-bottom interest rates pushing mutual funds and pensions into securities that offer extra income, the market has quadrupled from about $200 billion in the past decade.

In Millennium's case, OppenheimerFunds, Fidelity and Franklin Resources Inc. are among the major holders, filing data compiled by Bloomberg show. Representatives from the firms declined to comment or didn't provide comment.

A year after JPMorgan pitched the loan, Millennium began drawing increased scrutiny from holders after posting copies of letters from the Centers for Medicare & Medicaid Services on its private lender website in April, the people said.

In them, the federal health-care agency threatened to revoke Millennium's ability to charge Medicare and Medicaid because of the alleged billing irregularities, which included urine tests the company never performed, even for dead people.

Then, in a private follow-up call with some lenders, Millennium said a draft of the settlement with regulators and the Department of Justice would require it to pay a $250 million fine, people with knowledge of the call said last month.

"Millennium Health is very pleased to have reached an agreement in principle to resolve all federal and state issues involving the company," the company said in an e-mailed statement in May. "We have cooperated with the government since the investigation began over three years ago and appreciate the efforts of many to reach a result that avoids potentially costly and protracted litigation."

Profit Decline

CMS said in an email that negotiations are "fluid" and confidential, and declined further comment. Justice Department spokeswoman Nicole Navas also declined to comment.

The disclosure of the possible fine comes after the company suffered a first-quarter plunge in profit. Millennium, which gets about a third of its revenue from the government, told lenders privately that earnings, excluding some items, decreased 31 percent to $68 million, people with knowledge of the disclosures said last month. It also had less than $70 million of cash at the end of March, they said.

With its loan at distressed levels, Millennium may have an even greater incentive to keep out players that specialize in fighting for creditor rights, according to Jessica Reiss, an analyst at debt-researcher Covenant Review.

Millennium's lender blacklist includes Appaloosa Management and Fortress Investment Group LLC among a group of distressed- debt buyers, a copy of the list obtained by Bloomberg showed.

Generally, investors such as these "eventually kick up a storm and take the keys," Reiss said. "You can potentially have someone with a very big voice advocating something that the company might not want."

Representatives for both Appaloosa and Fortress declined to comment.

For Pacific Asset Management's Jason Rosiak, the lack of transparency in the loan market is nothing new, which puts the onus on investors to understand what they're getting into.

In that particular market, "balance of power is with the issuer," said Rosiak, a money manager at the unit of Pacific Life Insurance. "You have to be vigilant in what you're buying."

Some of the lenders still aren't sure when Millennium was first informed of the probe, despite a tense, hours-long call earlier last month with the company to discuss the disclosures it made, people with knowledge of the talks said.

A majority of lenders have begun to explore legal options, including whether to declare a default, the people said.

Robert Stark, an attorney for the lenders at Brown Rudnick LLP, said his firm and FTI Consulting Inc., the group's financial adviser, are in talks with the company and receiving confidential information. He declined further comment, as did a representative for FTI.

"The magnitude of the problem can be difficult to gauge," said S&P's Murphy.

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