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Behold the Burrito Bond: London high street fast food outlet Chilango , is offering an 8% coupon on a four-year corporate bond that gives some buyers a free burrito* every week for the lifetime of the debt

Jun 12, 2014

Behold the Burrito Bond

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JOSIE COX

An advertisment for Chilango’s Burrito Bonds sits outside a branch of Chilango on Fleet Street, Central London, on June 12, 2014.

Bond bubble? What bond bubble? These bonds give out free burritos!

London high street fast food outlet Chilango, favored by City types with elastic waistbands, is offering an 8% coupon on a four-year corporate bond that gives some buyers a free burrito* every week for the lifetime of the debt. All you have to do is cough up £10,000 pounds ($16,800) and trust that it is as good at servicing its debt as it is at serving bankers their lunch.

(*Chicken burritos cost £5.99. The WSJ’s preferred pork option costs £6.99. So that’s an extra £363-worth of free pork burritos a year.)

The company, founded by former Skype employees Eric Partaker and Dan Houghton, operates seven Mexican food outlets across the City of London–including one oppositeGoldman Sachs GS +0.32%’ London headquarters–but wants to raise £1 million to expand, “in order to make amazing Mexican food more accessible for people around the capital”, the founders write on their website.

And that’s how the Burrito Bond was born.

Burrito fans from across the U.K. have two months to invest money in the seven-year-old company. (Further details are here.) The minimum investment is £500, but for £10,000 the investor gets free lunch once a week. Coupons will be paid semi-annually and the principal amount will be reimbursed after four years. As a small token of appreciation, every investor gets a voucher for two free burritos upon subscribing. The first 100 also get invited to a Burrito launch party. There will be no secondary market trading.

One day after books on the bond opened, investments had already been received from executives in the food and drinks business, including the chief executive officer and chief financial officer of café-chain Carluccio’s, the former CEO of Domino’s Pizza UK and the former CEO of Krispy Kreme U.K., according to the prospectus website.

By Thursday, two days after the bond opened, the company had hit 32% of its target, the website says.

The company has said that while initial aim is to raise £1 million, it has the capacity to service up to £3 million of bonds if the deal is oversubscribed.

Each new restaurant costs around £500,000 to launch so raising £3 million would enable us to accelerate the opening of 6 new Chilango restaurants around London,” Mr. Partaker and Mr. Houghton write in the 33-page offering prospectus.

Payments are being accepted online via crowd sourcing site CrowdCube–a Financial Conduct Authority authorized website.

Asked why the company didn’t just choose to take out a bank loan like dozens of its peers, the owners said that they “like the idea of letting our guests and fans help shape our future and participate in our success”.

“The Burrito Bond allows us to do just that,” they add.

It is unclear whether the free burritos come with guacamole. It is also unclear whether anyone genuinely can eat that many burritos.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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