Chilango Provides Latest Mini-bond Meltdown

Chilango Provides Latest Mini-bond Meltdown

about 4 years ago2 mins

Mexican restaurant Chilango – London’s answer to Chipotle– became the latest British business to fall victim to the Nightmare on Main St this week, filing for a form of bankruptcy protection on Tuesday.

What makes the fast food firm’s demise particularly unpalatable, however, are the ramifications of its “company voluntary arrangement” for investors who piled $8 million into Chilango’s well-publicized crowdfunding efforts ☹️

What does this mean?

The Chilango “burrito bond” promised free Mexican food and a whopping 8% annual return. That seems a little loco now – but average-Joe investors frustrated by low interest rates couldn’t get enough at the time. 800 people snapped up a $5 million sale of Chilango debt as recently as April.

But wait! indeed… (Source: Chilango)
But wait! indeed… (Source: Chilango)

Now, however, the restaurant chain is urgently seeking to restructure. Under its proposals, which include shuttering branches, burrito bondholders face a Sophie’s choice between taking a 90% hit on their investment (and getting repaid just 10% of what they invested) or swapping their bonds for special Chilango shares promising a – wait for it – 8% annual dividend. Which won’t actually pay out until an unspecified future date… 🤔

Why should I care?

While requiring much smaller minimum investments than conventional bonds, privately traded “mini-bonds” like Chilango’s carry few of their legal protections and substantially higher risk – as those who lost over $300 million investing in London Capital & Finance know to their cost.

Crowdfunding in general offers superfans a chance to support the brands they love – but those looking to make serious money from such investments could end up disappointed or worse. Find out more by hitting up our Pack on Equity Crowdfunding 👌

Curiously, not all Mexican restaurant chains are struggling. The all-American Chipotle has turned things around over the last two years, with shares up almost 90% in 2019 alone. Maybe the old-fashioned stock market isn’t so bad after all…

Chipotle’s share price history
Chipotle’s share price history

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