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‘Burrito bond’ investors face losses as Chilango sets out rescue plan

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
02/10/2020

Hundreds of investors enticed by Chilango’s mini-bond paying 8% could lose their cash as the troubled firm proposes to enter a Company Voluntary Arrangement (CVA).

The UK-based Mexican food chain with 12 outlets has announced controversial plans to secure the future of the business.

It proposes to enter a CVA to exit non-trading leases, reduce rents in select locations, and restructure the company’s debt. Reports also suggest Chilango may be considering closing some of its outlets as part of the CVA.

Chilango raised millions of pounds from small investors via its ‘Burrito Bond’ scheme, with a first tranche of bonds on sale in 2014 raising more than £2m. Around 800 investors put their money toward the ‘Burrito Bond 2’ which launched in October 2018, raising £3.7m.

But Chilango’s parent company, London-based Mucho Mas, made a loss of £1.4m in the year to March 2018 and a loss of £3.2m in the previous year.

Just last month, it was revealed that the restaurant chain was in talks with restructuring experts about options for the business.

Eric Partaker and Dan Houghton, Chilango co-founders, said: “Chilango remains profitable at the restaurant-level, however in recent years the market in which we operate has changed significantly.

“This proposal allows us to make important changes so we can support our stakeholders and continue serving our loyal guests. We are proud of the strong brand and passionate following our teams have created and look forward to the future.”

What are retail and mini bonds?

Retail and mini bonds are a relatively new way for companies to borrow money directly from private investors.

Like a traditional bond, holders of a mini bond are paid interest until the bond reaches “maturation”, when they are repaid the full value of their investment.

Unlike traditional bonds, mini bonds are not listed on any stock exchange.

A number of high profile companies have issued mini bonds but they are high risk as the failure rate of small businesses can be high, and they are not protected by the Financial Services Compensation Scheme (FSCS).

Last month, the financial regulator cracked down on the sale of mini-bonds by imposing a 12 month ban on the promotion and mass marketing of them to the general public while it consults on making permanent rules.


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