Felix Salmon points to a NY Times article on a brilliant (brilliantly stupid?) oversight by lenders to Foxwoods Casino's Pequot Nation. See, the Pequot tribe is allowed to run Foxwoods because they are a sovereign nation - it's an Indian casino. This means that if bondholders lend money to the Pequots, which they did, they have one major problem - they, the bondholders - can't really foreclose on the assets of the Pequots, because no one but the Pequots are allowed to run Foxwoods. The collateral isn't really collateral for the lenders.
Felix sums it up:
"Essentially, the lenders can’t foreclose on the casino, because the current owners — the Pequots — are the only people who can own it. If it’s not an Indian casino, it’s can’t be a casino at all. That, in turn, gives the debtors enormous leverage over their creditors: they can pretty much name their terms, and the lenders have little choice but to agree to them."
and the Times article quotes:
“It’s kind of uncharted territory,” said Tom Foley, a lawyer who specializes in Indian gambling issues and is a past chairman of the National Indian Gaming Commission. “Many of the banks and bondholders should have been aware of these kind of risk factors, but when everything is good, nobody is really looking at the downsides.”
What a magnificent example of the pure ignorance of risk we saw in the credit bubble of the last 10 years.