Tuesday 10 December 2019 4:48 pm

Chilango launches CVA that could wipe out burrito bond investors

Around 1,500 bondholders are set to be left with a sour taste in their mouths after Chilango launched a company voluntary arrangement (CVA) that could see their investments rendered virtually worthless.

The stricken Mexican chain raised over £5.8m across two mini-bond offerings – dubbed burrito bonds – in 2014 and 2019, with bondholders promised eight per cent returns on the controversial investment products.

Read more: Questions over Chilango’s future after burrito chain calls in restructuring firm RSM

However under CVA proposals filed today, bondholders will be offered the choice to transfer their investments into shares in the company, or to cash out their investments at a rate of 10p per pound.

The CVA documents, seen by City A.M., also propose that Chilango exits four leases for dormant sites and cuts rents by 40 per cent at three of its 12 restaurants.

Chilango has been plagued by cash-flow issues and mounting debt, and is in talks with a restructuring firm in a bid to avoid administration. City A.M. revealed on Sunday that the chain was preparing to begin CVA proceedings.

Today’s CVA filings lay bare the stark financial pressures facing the restaurant chain, which has never turned a profit and is over two months late posting its accounts. It had £6.9m of debt at the end of October, and a forecast deficit of £300,000 from January next year. 

The company’s creditors, including bondholders and landlords, now have until 3 January to vote on the CVA proposals. If they reject them, the company will enter administration. 

Shareholders will also vote on whether to issue preferential shares to bondholders, which would put them first in line for any dividends paid out by Chilango.

Like the burrito bonds, the shares carry an annual dividend of eight per cent, but payment of this would be dependent on the success of the company.

“Taking such a deep bath on an investment is a disappointment, but was always a possibility,” one bondholder told City A.M.

Read more: Chilango confirms plans to launch CVA and exit leases

“What is frustrating is the complete silence from Chilango’s co-founders. They were happy to speak to reporters and appear on video when promoting their burrito bond, but since news of the company’s downturn broke, bondholders have received zero communication until today.”

“They were happy to take our money, but have yet to offer an apology, contrition or even a reassuring word,” they added.

Chilango declined to comment on the CVA filing.