Chilango nears close of oversubscribed mini-bond

By Roger Baird on 3rd April 2019

Alternative Credit

The Mexican restaurant chain said it was urged by investors to offer a second mini-bond after its first appeal to investors five years ago.

Chilango nears close of oversubscribed mini-bond

Mexican restaurant chain Chilango is about to close it second oversubscribed mini-bond, at a time of intense scrutiny for the financial product.

The London-based business said it has raised £3.3m from retail investors since it launched, what it calls its Burrito Bond 2, in October.

The company, founded 12 years ago, had planned to raise £1m from its four-year mini-bond offering eight per cent to investors. However, due to investor interest, it said, the firm has raised its target and extended the cash call several times. It is now due to close on 12 April, and its new target is £3.5m.

The move by the mid-market dining chain, with 11 outlets, comes amid concern by MPs and regulators about whether the risks attached to mini-bonds are understood by small investors.

Levels of harm

Yesterday, the Financial Conduct Authority (FCA) said it would look into “whether the existing regulatory system adequately protects retail purchasers of mini-bonds from unacceptable levels of harm.”    

It was urged to do so by Treasury Select Committee chairman Nicky Morgan, following the January collapse of investment firm London Capital & Finance (LC&F), which left 11,500 small investors facing 80 per cent losses on the £236m they invested with the firm, which marketed unregulated mini-bonds as regulated ISAs.

However, Chilango said it has “received a steady stream of requests to offer another bond” from investors since its first one in 2014.

The minimum investment in the current bond is £500, but if backers put in more than £10,000, they get a premium black card entitling them to a free weekly burrito meal for the lifetime of the loan.

Chilango said it will use the cash to open new outlets, which cost around £500,000 per restaurant. It will also refinance existing debt.

The business was founded in 2007 by two former Skye employees Eric Partaker and Dan Houghton, who opened their first outlet in Upper Street, north London. The majority of its restaurants are in the capital, with a single outlet in Manchester.

Solid platform

Partaker said: "The response to the offer has been overwhelming and bears testament to the public’s enthusiasm for our mission – to inject a little flavour and vibrancy into the largely bland high-street dining landscape."  

Last year the chain posted a £1.7m restaurant ebitda profit on £10.3m sales and £1.7m with 5.3 per cent like-for-like sales, it forecasts £2.1m restaurant ebitda profit and nearly £11m sales for the current financial year.

One prominent backer in the current bond is former Itsu managing director David Haimes. He said: “We are into fast growth, off a solid platform. What a great time to invest.”

The company's other prominent backers include former Domino’s Pizza UK chief executive Chris Moore and former McDonald’s UK marketing vice-president Laurie Morgan.

The firm’s original Burrito Bond five years ago attracted almost 750 investors to its four-year mini-bond, offering a fixed-rate of eight per cent in cash with a minimum investment of £500.

 

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