The bankruptcy automatically terminated the swap. Under the contract, the university was required to pay a $25 million termination fee to the now-bankrupt bank.
But at that point, there was one upside. Interest rates were volatile, but had not yet plunged. The swap was not yet deep underwater. The university was out of a gamble that looked increasingly precarious.
And last but not least,
In a decision that is still not clear, university officials decided to find another bank to provide a swap with the same terms. Deutsche Bank agreed to pay the university $31 million to reissue the swap – which officials now estimate will produce $123 million in losses in coming years.