‘Our ingredients: love, passion and great milk!” declares the Web site of the esteemed parmesan cheesemaker 4 Madonne Caseificio dell’Emilia. They will need to update that shortly, with a pinch of “tradable financial instruments.” Like so many small businesses, 4 Madonne struggles to borrow from the bank right now. Unlike most, however, it has found their solution in the bond markets.
The problem for parmesan makers, similar to the problem faced by whisky distillers, is that their product takes years before it is ready for market — generally two or three years, in the case of parmesan. In that time, all the money you spent buying milk and paying staff just sits there, in 40kg wheels, maturing, usually gaining value, but sometimes going wrong. It is like having an employer who pays you well, but three years late. Tricky, unless you can find a loan.
Bonds essentially are loans, but instead of paying them back gradually, the borrower pays just a small amount of regular interest for a fixed period, then pays back the whole loan in one go. In this way, 4 Madonne has borrowed 6 million euros (US$6.69 million) by issuing “minibonds,” whose owners get a 5 percent payment every six months until January 2022, when the bonds reach maturity. Should the company fail to pay, or go bankrupt, the bondholders will at least have a pile of maturing cheese that they can sell.
Strange as it may sound, parmesan cheese is one of the more familiar sights on the financial markets.
In Emilia-Romagna, it is quite normal for banks such as Credem to warehouse thousands of parmesan wheels in climate-controlled vaults, as security for loans they have made to cheese makers. Recently, however, especially in Britain, minibonds have become a popular way for startups to raise money.
In December last year, Arbikie, a new Scotch whisky distillery, offered its first 300 barrels for sale at £10,000 each, with the promise to buy them back at the same price in eight years’ time (and the prediction that you would not want to sell, because they will be worth much more). These are essentially £10,000 bonds, and might indeed (or might not) be a good investment.
In April last year, Innis & Gunn, a Scottish craft brewer, promised to pay investors 7.25 percent annual interest — or 9 percent, if you spent all the money on vouchers for its beer. In the summer of 2014, the Mexican street food chain Chilango raised more than £2 million from 709 investors by issuing “burrito bonds,” which not only paid out 8 percent twice a year for four years, but also entitled bondholders to free food every now and then. Hotel Chocolat did something similar in 2010, raising £3.7 million in chocolate bonds, which supplied investors with free samples, as had razor makers King of Shaves in 2009.
In fact, bonds crop up in all sorts of places. In 1997, the investment banker David Pullman offered what became known as “Bowie bonds” to Wall Street. For a 10-year period, institutional investors received a 7.9 percent return based on royalty payments for all of David Bowie’s 25 albums recorded before 1990. At the end, they were repaid in full. As a result of the deal, Bowie was able to borrow US$55 million, from the Prudential Insurance Company of America, and, in 2007 — after an interesting decade in the music business — investors got their money back.
However, there are risks. Investors in 4 Madonne will be hoping there are no cheese-destroying earthquakes in the area for the next six years , like the one in 2012.
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