Ive been doing research on law school outstanding bonds and have noticed that the private schools are levered up to their eye balls. Surely many of you have read about the infamous "credit default swap" CDS whereby the protection buyer enters into a agreement with the protection seller of a bond. If the bond goes into default then the protection buyer gets paid out at par. In addition,a protection buyer can purchase the CDS contract when the bonds are rated higher, and sell them to another speculator in the event the bond gets downgraded for a hefty premium.
Check out the latest downgrades of school bonds.
Colleges Downgraded by Standard & Poor's (July 1, 2008 - March 31, 2009)
Issuer Current Rating Previous Rating
Cornell University AA AA+
Dartmouth College AA+ AAA
Eastern Michigan University A- A
Illinois Wesleyan University BBB+ A-
Madonna University BBB+ A-
Regent University BBB+ A-
Santa Fe College* C BB
Sarah Lawrence College BBB+ A-
Simmons College BBB+ A-
Thomas Jefferson School of Law BB+ BB-
When I find more info on the credit vehicles that permit such trading, I will surely inform you.