Lehman-Backed Muni Gas Bonds Trade for Cents; Deliveries Halted

(Bloomberg) — Tax-exempt bonds guaranteed by Lehman Brothers Holdings Inc. for a gas-supply contract may be worth little more than unsecured debt after the bankrupt underwriter’s commodity unit stopped deliveries last week.

Main Street Natural Gas, a financing vehicle of the Municipal Gas Authority of Georgia, terminated the contract funded by $709 million in bonds sold five months ago, after Lehman’s subsidiary failed to deliver gas for five days beginning Sept. 18. New York-based Lehman, which filed for bankruptcy on Sept. 15, owes a termination payment that would provide enough money to redeem the bonds Sept. 30.

…The utilities that received gas from the deal, including Tallahassee, Florida, lose the savings from market price that the tax-exempt financing created for them. The default may also damp issuance of similar bonds through which local entities lock in long-term energy supplies at a discount through deals backed by financial firms, according to Merrill Lynch & Co.

Bloomberg