Investors who ploughed £5.8m into Chilango’s burrito bonds are set to have their investments converted into shares as the struggling Mexican chain fights to stay afloat.
Under company voluntary agreement proposals (CVA) launched earlier this month, shareholders were offered the choice between cashing out bondholders’ investments at a rate of 10p per pound or transferring the debt into shares.
In an email sent to some shareholders yesterday and seen by City A.M., Chilango said enough shareholders had backed its proposal to transfer burrito bond debt into preferential shares in the company for the plans to go ahead.
The new shares will put bondholders first in line for any dividends paid out by Chilango, but have no guarantee of receiving the high returns they were promised when they bought the controversial investment products.
Like the company’s mini-bonds – dubbed burrito bonds – the shares offer eight per cent annual returns, but whether payments are made will be dependent on the success of the company.
City A.M. revealed that Chilango was undergoing financial difficulties in November, and it launched proposals in a bid to avoid administration shortly afterwards.
The restaurant chain’s CVA documents, seen by this paper, outline the stark pressures it is facing, including £6.9m of debt.
Chilango is currently trying to recruit a financial controller to be “responsible for the overall control of all financial aspects of” and the “flow of financial information throughout” its parent company, Mucho Mas.
“Over the past 12 months the business has been through a period of significant change and restructure. We are now though [sic] the other side and require an experienced Financial Controller to help us optimise the finance function and drive continued profitability across the business,” said a job listing posted yesterday.
Chilango’s creditors have until 3 January to vote on the company’s CVA proposals, which include quitting four leases on dormant sites and slashing rents by 40 per cent at three of its 12 restaurants.
One Chilango shareholder, who did not want to be named, expressed frustration over the company’s financial situation.
“We were promised a company sale several years ago but now we have slim to no chance of ever receiving our investments back,” they told City A.M.
Burrito bondholder Daniel Benton told City A.M. the creation of the new shares “seems to be a positive outcome bearing in mind the other options of possible liquidation or 10p on the on £1”, but called for further regulation of the market.
“The market for bonds of this kind should probably be subject to review of potentially more stringent regulations,” he said.
The Financial Conduct Authority (FCA) announced a ban on the marketing of some mini-bonds to amateur investors, but bonds such as Chilango’s would not be affected by the restriction.
A spokesperson for Chilango declined to comment.