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“Burrito bond” investors now risk losing up to 90% of their money

Damian Wood
  • December 16th 2019, 11:02
  • “Burrito bond” investors could lose 90% of their investment.
  • According to documents seen by The Guardian, Chilango’s mini-bond investors could receive only 10p per pound invested.
  • The restaurant is planning to restructure in a bid to contain its current financial woes.

It wasn’t business as usual for “burrito bond” investors after being informed that they could lose 90% of their investments or up to 99% if the company is placed under receivership. About a month ago, The Guardian published an article highlighting that UK-based Mexican restaurant chain Chilango, was in talks regarding the future of the entity.

News of the restaurant’s financial distress came as a shocker to hundreds of small-scale investors who until as late as April this year subscribed to the Chilango’s mini-bond, betting millions of pounds on the company’s future. The prospectus of the mini-bond talked of an 8% annual return, with the promoters reassuring investors that all the restaurants under the franchise were reporting profits.

But late last week, the sad news hit the market, indicating that millions of pounds could go up in smoke following the restaurant’s troubled operations. Chilango officials came out to reassure investors that they were scheming a restructuring move that they termed as company voluntary arrangement (CVA) to ease the pressure on its assets. Documents seen by The Guardian show a deep-rooted financial crisis that has made the business’s operations unsustainable. If urgent restructuring doesn’t take place, the restaurant is likely to be liquidated, according to The Guardian.

Sources close to the matter said the restructuring move could only help yield 10% for every pound invested.

The restaurant has twelve outlets in the UK, with ten based in London. Chilango’s first round of funding took place in 2014 when they raised £2.1m from its Burrito bond. And last year, the company resurfaced once more seeking funds. Filed documents show that during its previous year’s mini-bond, the company received about £3.7m from a pool of 800 investors.

Companies use mini-bonds to borrow directly from the public, and small investors thirsty for huge returns have been the most interested lot. This category of bonds offers a fixed rate of return on the invested sum, and once the bond reaches maturity, your full capital is returned. But mini-bonds have been known to be as controversial are they are risky.

As it is, Chilango bondholders have been presented with two options: the first option allows them to receive a mere payment of 10p per pound or back the restructuring and convert their investments into shares in the company. Option two is pretty straightforward; the mini-bond holders can vote against the whole restructuring idea.

The restaurant is said to have “begun a process of engagement with its stakeholders with a plan to secure the future of the business”.

About the author

Damian Wood
Damian Wood
As an experienced trader, I work for myself managing my own small portfolio and also contributing on several investment news sites. I mix my passion for the industry and journalism to bring my readers informative and trustworthy articles.

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