Lehman Investment Opportunity Note (LION)

What Was a Lehman Investment Opportunity Note (LION)?

A Lehman Investment Opportunity Note (LION) was a type of zero-coupon Treasury bond issued by the U.S. government through the Lehman Brothers brokerage from the mid-1980s until the bankruptcy of Lehman Brothers in 2008. Lehman Investment Opportunity Notes (LIONs) were created as a set of "feline" investments by brokerage houses as a new type of security that separated principal and interest, and the notes were issued at a discount from the face value. 

LIONs were zero-coupon bonds, which means that they made no interest payments to bondholders. Instead, investors made money because the par value they received back at maturity of the bond was more than the discount price they had paid for the bond. 

Key Takeaways

  • A Lehman Investment Opportunity Note (LION) was a government security issued by Lehman Brothers in the 1980s through the firm's bankruptcy in 2008.
  • Unlike other bonds, a LION was not a mix of principal and interest, as it didn't pay interest; instead, it was sold to investors at a discount and paid face value at maturity.
  • Other brokerages also sold government-backed zero-coupon bonds, but they were marketed under different names.
  • Lehman and other brokerages would hold the Treasury bonds in escrow, take the interest payments, separate the bonds, and issue new ones with no interest rates paid out to investors.
  • LIONs and other such bonds were popular because they were backed by the government, and therefore no risk to the investor.

Understanding the Lehman Investment Opportunity Note (LION)

A Lehman Investment Opportunity Note (LION) was simply a U.S. Treasury bond issued through the brokerage Lehman Brothers. This was one of a new type of bond that didn't combine principal and interest because it didn't pay any interest, and instead was sold at a discount and then paid par value, or face value, when redeemed at maturity.

This zero-coupon bond was offered through Lehman Brothers as a LION but was also offered through other brokerage houses under different names. The brokerage house held the actual Treasury bond in escrow, took the interest payments and used them to separate the bonds, and issued new bonds with zero-coupon to investors. This was called coupon stripping. Because these bonds were Treasury-backed, they were no-risk investments.

The LION was a successful enough investment vehicle that the U.S. Treasury issued its own version, Separate Trading of Registered Interest and Principal of Securities (STRIPS) in 1986. LIONs continued to be traded on the secondary market and remained popular because of their lack of risk.

During the financial crash of 2008, Lehman Brothers filed for Chapter 11 bankruptcy.

The Felines

The 1980s saw a rise in acronyms for financial instruments, and zero-coupon bonds took this trend to the extreme. Between 1982 and 1986, LIONs were issued by Lehman Brothers, TIGRs (Treasury Investment Growth Receipts) were issued by Merrill Lynch, and CATS (Certificates of Accrual on Treasury Security) were issued by Salomon Brothers. Together, these were nicknamed the felines, because they all had names of members of the cat family.

In 1986, the U.S. government introduced its own direct version of a zero-coupon bond called STRIPS. This effectively rendered the previous private issues obsolete, although they still traded on the secondary market until Salomon Brothers was subsumed into Citigroup in 2003 and Lehman Brothers filed for Chapter 11 bankruptcy during the crash of 2008 and ceased to exist.

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  1. U.S. Department of the Treasury. "Timeline of Separate Trading of Registered Interest and Principal Securities (STRIPS)." Accessed April 9, 2021.

  2. U.S. Securities and Exchange Commission. "Statement on Proposed Lehman Brothers, Inc. Acquisition by Barclays." Accessed April 9, 2021.