Bonds Advice

Would you invest in a 'burrito bond' offering returns of 8pc – but no protection for investors?


Savers hunting for returns in an era of low interest rates may be tempted by a trio of new bonds paying up to 8pc a year.

The high return is offered by the return of the so-called “Burrito Bond” by Chilango, the Mexican restaurant chain.

The four-year mini-bond can be taken out with £500, and has no upper limit. Interest is paid twice a year. At the end of the four-year term investors can either get their initial investment back or extend it for another year.

Chilango wants to raise money to open more restaurants, which cost £500,000 each. It wants to raise at least £1m, but if it gets more, then it will simply open more restaurants or refinance existing debt.

If investors put in £10,000 then they also get a free meal a week for the term of the bond.

The “Burrito Bond 2” is a repeat of an earlier Chilango offering in 2014 that raised £2m from 700 investors.

Mini-bonds offer good returns. The 8pc returns offered by Chilango far outstrip those of other bonds.

Retail bonds typically offer returns or around 4-6pc. The best fixed-rate bond return to consumers is currently 2.75pc, available with Islamic bank BLME for a seven-year deal.

But mini-bonds come with risk attached. Unlike retail bonds, mini-bonds are unlisted, meaning more risk for investors should anything go wrong. Investors cannot sell them midterm, unlike retail bonds.

Mateusz Malek, of investment firm Killik & Co, said his firm classed mini-bonds as “uninvestable” due to the risk and relative lack of information available to investors compared to retail bonds.

Chilango investors who put in £10,000 will also get a free meal a week for the term of the bond  

Heathcliff O'Malley

Mini-bonds can also fail dramatically. In 2015, Secured Energy Bonds failed, losing investors £7m. This was followed by Providence Bonds in 2016, which went into administration with £8m in investor money.

Mark Taber, a bond expert, said the size of the firms offering mini-bonds adds to the risk. He said: “The companies that tend to issue them tend not to be large, established companies.”

Michael Dyson, of Bond Advisors, the consultancy, said if investors had a balanced portfolio and were comfortable with the risk, they could consider a small exposure to the Chilango bond.

He said: “It’s very difficult to bring conventional assessment to these products. I don’t know if it’s good or bad – but it’s a good return. I would probably put quite a small amount in.”

Eric Partaker, of Chilango, defended the bond and said the first version had a “perfect” payment history.

Chilango’s parent company, Mucho Mas Ltd, made a loss of £1.4m in the year to March 25 this year. It made losses of £3.19m the year before.

But Mr Partaker said the underlying health of the business was strong and that some of the £1.4m loss was due to costs such as setting up new stores.

The firm made profits of £373,771 in the period before tax and other deductibles.


The second bond is an inflation-linked 10-year retail bond issued by Heylo Housing Group, a residential property firm. The bond pays 1.625pc interest every year.

The money raised from the bond will be invested in new-build shared ownership houses, where tenants’ payments will rise in line with inflation and are guaranteed not to fall.

The bond itself is also limited, meaning the investment will rise during periods of inflation but will not fall in the event of deflation. Investors need to put in at least £2,000 at first.

Someone investing £2,000 would get £359.60 in interest at the end of 10 years, while the bond would be redeemed at £2,445.20, assuming inflation rates of 2pc for the period.

The deal is the first UK inflation-linked retail bond for more than six years, according to Mr Malek.

He said: “Inflation-linked bonds offer protection against rising inflation and are a good diversifier for most investors’ bond portfolios that are predominantly exposed to fixed-coupon bonds.”

Oliver Butt, of Contisec, the bond broker, said the deal was “attractively priced”, but that it came with risks.

These include the fact that Heylo is a young company, Heylo shareholders not putting their own cash into the project, any fall in house prices and tenants not paying their rent.

However, Mr Butt said the risk of the last two points was small.

Mr Butt said: “Shared ownership is heavily promoted by the Government and others and there is a waiting list. However, it is part of the ever-more labyrinthine social housing market. At the moment it suits all concerned, but the wind may change.”

Mr Dyson, whose sister firm BondInvest Capital will manage the Heylo bond issue, said: “You get a deflation-protected RPI-linked bond, which I think is brilliant for Sipps and Isas, frankly.”

Hidden homeless

The third bond is the inflation-linked “sanctuary bond” issued by Equfund, the social investment firm. The money raised from this mini-bond will be used to buy and renovate homes to let to the hidden homeless. These are people who may not be sleeping rough but have no permanent home.

Investors can either waive the interest, letting Equfund buy more houses, or pick the inflation-linked option.

An Equfund spokesman said: “This will enable Equfund to continue to provide affordable housing and is aimed at investors who want to invest for societal good, but still need their money to work for them and not be diminished by inflation.”

The maximum interest will be capped at 5pc a year, linked to the Consumer Prices Index. The minimum investment is £1,000 and the maximum is £250,000. Married couples can invest £500,000.

The bond can be taken out for terms of three to 15 years. Equfund wants to raise up to £5m from the bond.

Mr Dyson said the mini-bond was for a good cause but hard to fully assess as an investment.

He said: “I think these are for people with large portfolios and who are happy to broaden out.”

An Equfund spokesman said the deal was aimed at sophisticated long-term investors who wanted to do direct social good and who were happy with the possibility of no guaranteed returns.

Mini-bonds versus retail bonds

Both of these deals involve lending a firm money for a fixed time, then getting regular interest and your capital back at the end of the term.

However, they are very different in risk and return. Mini-bonds tend to pay more money because the investor takes more risk. They tend to be issued by small firms with short track records. They also cannot be traded on the stock market, so investors are stuck with mini-bonds until maturity, with no get-out option.

Mini-bonds are not covered by the Financial Services Compensation Scheme, which normally guarantees investors’ money up to £50,000 should a financial firm go bust.

Retail bonds are more regulated, with stricter requirements. Retail bond issuers have to publish a prospectus document giving investors a full breakdown of the bond and the audited financial status of the firm sitting behind it.

Mini-bonds are not obliged to do this, and usually publish a much sparser “invitation document”.


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