Category Archives: Main Street Natural Gas Bonds

Main Street Natural Gas Bonds

The September 2008 bankruptcy filing of Lehman Brothers Holdings is unlikely to fade from the memory of investors anytime soon. That’s because the bankruptcy had a ripple effect on other investments tied to Lehman, including investments in Main Street Natural Gas Bonds.

Main Street Natural Gas Bonds were marketed and sold by many Wall Street brokerages as safe, conservative municipal bonds. Instead, the bonds were complex derivative securities backed by Lehman Brothers. When Lehman filed for bankruptcy protection in September 2008, the trading values of the Main Street Bonds plummeted.

Many investors who put their money in Main Street Natural Gas Bonds allege that the brokers in question never disclosed all of the risks associated with the bonds nor did they reveal the fact that the bonds were connected to the financial health of Lehman Brothers.

If you were sold Main Street Natural Gas Bonds as a safe, low-risk investment, you may have a viable claim for recovery. Please contact our firm to tell us your story.

The story of Main Street Natural Gas Bonds serves as an invaluable lesson on the Wall Street-Main Street connection. Marketed as a supposedly “safe” investment, Main Street Natural Gas Bonds have spurned a cadre of lawsuits from investors who allege that brokerage firms misrepresented the safety of the bonds and omitted other key material facts about them. 

Among those facts: The Main Street Natural Gas Bonds shared very little in common with the safety of traditional municipal bonds. That’s because the Main Street bonds were connected to a gas supply contract of Lehman Brothers Holdings. When Lehman Brothers filed for bankruptcy protection in September 2008, the fate of the bonds was immediately put into jeopardy because their “safety” depended on the fiscal viability of Lehman Brothers.

In turn, individual and institutional investors were subsequently wiped out after Lehman’s commodities unit stopped delivering gas to the nonprofit corporation. 

Many of the investors who purchased Main Street Natural Gas Bonds did so because they were looking for a safe, tax-free income-producing investment backed by a municipality. What they got was far different than what they had in mind. 

The Financial Industry Regulatory Authority (FINRA) has launched an investigation into whether banks and brokerages that sold various issues of Main Street Natural Gas Bonds were forthcoming with investors about the true state of Lehman Brothers’ deteriorating financial condition. 

“One interesting firm ran a bunch of senior citizens’ sales seminars where they promoted these particular bonds as good,” said Malcolm Northam, FINRA’s director of fixed income securities, in a Sept. 24 Bloomberg article. “Maybe they were, at the time they were promoted. I don’t know. It raises interesting questions.” 

It’s also raising lawsuits. One Florida investor sued a broker, claiming the Main Street bonds were falsely touted as general obligation bonds guaranteed by the state of Georgia. 

If you invested in Main Street Natural Gas Bonds, you may have a viable claim to recover any investment losses you suffered following Lehman’s bankruptcy. Please contact our firm to tell us your story.

As everyone knows by now, the meltdown on Wall Street has affected Main Street in unexpected, unusual and unprecedented ways. Consider the enchanting world of Walt Disney’s Magic Kingdom. As reported a year ago by USA Today, the natural gas that cooks the food in Disney’s Magic Kingdom – and elsewhere throughout America’s Main Street – was one of the things that Wall Street bought and sold to investors as safe, low-risk investments.

On Sept. 15, that natural gas deal – known as the Main Street Natural Gas bonds – went bust, plummeting in value after Lehman Brothers Holdings, which had guaranteed the bonds, filed for bankruptcy protection. Investors and consumers subsequently found themselves reeling from the fallout. Investors were out $700 million and places like Disney World experienced higher prices to cook the food for the visitors to its Magic Kingdom.

Main Street Natural Gas is a non-profit corporation of the Municipal Gas Authority of Georgia. In 2006, several Wall Street investment firms came up with the idea to get the Authority to lock in, for presumably decades, inexpensive supplies of natural gas. The idea was simple: Borrow money at low, tax-exempt interest rates and provide that money to the investment banks. Wall Street would then use that debt to make investments and, in turn, supply natural gas at low prices.

The investments made by Main Street included natural-gas derivatives – contracts that bet on the cost of natural gas in the future. In April, Main Street borrowed $700 million, giving it to Lehman Brothers. In return, Lehman promised to arrange delivery of nearly 200 billion cubic feet of natural gas over 30 years at a below-market price.

“That’s like a taxi driver borrowing $7,000 and giving it to a man who promises to supply gasoline for the next 30 years at 50 cents per gallon less than the market price,” said the USA Today article.

The savings associated with such a deal would be nothing to sneeze at – that is if the company holding all the money stayed in business. Lehman Brothers Holdings filed for bankruptcy on Sept. 15. At the time, less than 1% of the natural gas it promised to deliver actually made it.

As for the $700 million, it went the way of Lehman’s other assets: into a pool of money allocated to repay creditors. In other words, Main Street Natural Gas’ lenders must wait in line with countless other unsecured creditors. If they’re lucky, the lenders might get 30% of what they are owed. And the bonds they purchased to finance the natural-gas deal in the first place? They now sell for pennies on the dollar.

The brokerage firms that sold Main Street Natural Gas Bonds to investors never let on about the significant risks associated with the investments nor did they disclose critical information about the deteriorating fiscal health of Lehman Brothers and its toxic mortgage debt exposure.

If you own or owned Main Street Natural Gas Bonds guaranteed by Lehman Brothers Holdings, you may have a viable claim to recover any investment losses you suffered following Lehman’s bankruptcy. Please contact our firm to tell us your story.