Burrito chain Chilango has given notice of its intention to appoint administrators, in a further blow to bond-holders.

The company, which went through a CVA at the tail end of last year, has been working with RSM and will seek a sale, according to a statement.

Founders Eric Partaker and Dan Houghton have ruled themselves from purchasing the company out of administration, with the brand open to bids.

The administration is complicated by the fact Chilango has raised some £5.8m in two rounds of so-called burrito bonds.

Chilango said though the vast majority of its bondholders had chosen to preserve their principal investment and rate of return in a new preference share class following the CVA, the company had decided to pause this conversion.

It said this was to ensure the position of bondholders was not changed or worsened by any steps which might need to be taken, “pending the discussions now underway to secure the business’s future”.

In a letter, shareholders were told: “No business could have foreseen the impact the coronavirus crisis would have on our industry, with few sectors being hit harder by the pandemic than hospitality.

“During this period, we have done our very best to mitigate the pandemic’s impact, operating as much as is safely possible, while implementing the various government support measures available. Unfortunately, these efforts have not been sufficient to secure the future of our business.”

Chilango said the sales process would “pursue the best possible outcome for the business, our employees and our creditors”.

The note reported the brand had returned to positive trading before lockdown, and was on track to deliver a budgeted group EBITDA of over £800k.

One a rising star of the fast-casual sector, Chilango raised £5.8m through the sale of two tranches of burrito bonds, in 2014 and 2019.

The min-bonds enabled lenders to purchase some of the company’s debt for a set period of time, in exchange for fixed interest payments, with promised returns of 8% a year.

The bond offering declared that “100%” of its restaurants were profitable.

The then 12-strong Chilango entered restructuring talks with RSM in November 2019, before launching a CVA in December.

During the process, it was revealed that as of October 2019, debts at the company stood at £6.8m.

Investors were told at the time they could face losing 90% of their money – or 99% if the company entered administration.

Meanwhile lenders in the second round learned in January that some of their cash was used to repay the previous bond.

Following the CVA, which was approved in January 2020, around 8% of these bondholders cashed out, getting just 10p on the pound.

After the restructuring was completed, co-founders and co-CEOs Partaker and Houghton stepped down to cut costs, with Richard Franks appointed MD.

The Chilango statement added: “Although the vast majority of bondholders, following the CVA, had chosen to preserve their principal investment and rate of return in a new preference share class, we took the decision to pause this conversion. This was to ensure the position of bondholders was not changed or worsened by any steps which might need to be taken, pending the discussions now underway to secure the business’s future.

“It is with a heavy heart that we share this news with you today, and we will provide more information when we have more clarity on the future of the business.

“We appreciate your patience during these unprecedented times.”