Making Dreams Come True

Carlos Galendez had big dreams but very little money. He had worked more than 10 years washing dishes and then as a cook for two major restaurants. Finally, his dream to save enough money to start his own Mexican restaurant came true. Galendez opened his restaurant, Casa de Carlos, with a guaranteed loan from the Small Business Administration. His old family recipes and appealing Hispanic decor helped the business gain immediate success. He repaid his small-business loan within 14 months and immediately opened a second location and then a third. Casa de Carlos became one of the largest Mexican restaurant chains in the nation.

Galendez decided the company needed to go public to help finance a nationwide expansion. He believed that continued growth was beneficial to the company, and that offering ownership was the way to bring in loyal investors. Nevertheless, he wanted to make certain his family maintained a controlling interest in the firm's stock. Therefore, in its initial public offering (IPO), Casa de Carlos offered to sell only 40 percent of the company's available shares to investors. The Galendez family kept control of the remaining 60 percent.

As the public's craving for Mexican food grew, so did the fortunes of Casa de Carlos, Inc. By early 2001, the company enjoyed the enviable position of being light on debt and heavy on cash. But the firm's debt position changed dramatically when it bought out Captain Ahab's Seafood Restaurants and, two years later, expanded into full-service wholesale distribution of seafood products with the purchase of Ancient Mariner Wholesalers.

The firm's debt increased, but the price of its stock was up and all its business operations were booming.

Then tragedy struck the firm when Carlos Galendez died suddenly from a heart attack. His oldest child, Maria, was selected to take control as chief executive officer. Maria Galendez had learned the business from her father, who had taught her to keep an eye out for opportunities that seemed fiscally responsible. Even so, the fortunes of the firm began to shift. Two major competitors were taking market share from Casa de Carlos, and the seafood venture began to flounder (pun intended). Also, consumer shifts in eating habits and the slight recession in 2002 encouraged consumers to spend less, causing the company some severe cash flow problems. It was up to Maria Galendez as CEO to decide how to get the funds the firm needed for improvements and other expenses. Unfortunately, several local banks wouldn't expand the firm's credit line, so she considered the possibility of a bond or stock offering to raise capital for the business. Her decision could be crucial to the future of the firm.

1			What advantages do bonds offer a company such as Casa de Carlos? What disadvantages do bonds impose?
2			What would be the advantages and disadvantages of the company's offering new stock to investors?
3			Are any other options available to Maria Galendez?
4			What choice would you make and why?