Now we have CLOs

CLO stands for Collateralized Loan Obligation. Does this sound like the CDO (Collateralized Debt Obligation) of Great Recession fame? The CLO is even worse. 

While the CLO trades like a security, no one regulates them. The information supplied by the issuer is somewhat sparse. Borrowers can limit who can access their financials, control the type of data they get, and even blacklist certain investors from ever buying the loan.

An example of how bad CLOs can be is Millennium Health, the biggest drug-testing lab in the US and biggest recipient of Medicare drug-testing payments. It issued a $1.775 billion loan in April 2014. The money was not invested in the business; $195 million was used to pay off debt and $1.297 billion was used to fund a special dividend to its owners. At the time of issuance the company quietly announced it was being investigated by Medicare. But no one paid much attention until the settlement was announced. Millennium has to pay almost $250,000,000 to Medicare. But it does not have that kind of money.