Byju’s files suit against TLB acceleration, eyes Redwood’s disqualification

Edtech giant Byju’s said it has taken the decisive action to file a complaint in the New York Supreme Court to challenge acceleration of the $1.2 billion Term Loan B (TLB) and to disqualify Redwood, which contrary to the terms of TLB, purchased a significant portion of the loan while primarily trading in distressed debt. Byju’s has had to take these measures following a series of predatory tactics by the lenders, led by Redwood.

Byju’s said that on March 3, 2023, TLB lenders unlawfully accelerated the TLB on account of certain alleged non-monetary and technical defaults. “On the back of this unconscionable acceleration of the TLB, the TLB lenders undertook unwarranted enforcement measures including seizing control of Byju’s Alpha and appointing its own management,” said the company. “Not resting content with this, the TLB lenders (acting through their agent, GLAS Trust Company) commenced litigation in Delaware in an attempt to lend credence to these actions.”

In the Delaware proceedings, Byju’s said the TLB lenders (unsuccessfully) attempted to deprive the firm of its contractual right to ‘disqualify’ lenders engaged primarily in opportunistic trades. It said the Delaware court rejected this attempt, ruling that the TLB lenders “have not demonstrated either irreparable harm or the balance of the harms as required to support a provision restraining” this contractual right of Byju’s.

Despite this, Byju’s said the TLB lenders continued to conduct themselves in a high-handed manner. They issued a notice demanding immediate payment of the entire amount under the TLB, despite knowing that this purported acceleration was under challenge before the court. The company said the TLB lenders’ agent has even refused to provide identities of the TLB lenders to Byju’s – something Byju’s is entitled to under the TLB. Additionally, the TLB lenders have consistently taken measures to smear BYJU’S reputation.

At the same time, the company said that the Redwood – a lender known to primarily trade in distressed debt – consistently increased its exposure by acquiring a sizeable stake in the TLB with the intent of making windfall gains.

“In the wake of all these actions, Byju’s was left with no option but to commence proceedings in New York – the contractually agreed forum – challenging the acceleration,” said the company.  Along with this, Byju’s has also issued a notice to the Redwood entities disqualifying them. Once such disqualification takes effect, Redwood would be restrained from exercising critical rights under the TLB. Byju’s said it had so far demonstrated remarkable restraint by refraining from utilising the disqualification clause, instead striving for months to achieve an amicable resolution with the hawkish trader-lenders.

Given that legal proceedings are now on foot in both Delaware and New York, it is clear that the entire TLB is disputed. As such, Byju’s said it cannot be expected to and has elected not to make any further payment to the TLB lenders, including any interest, until the dispute is decided by the court. As conveyed to the TLB lenders, Byju’s said it remains financially robust with significant cash reserves. As a gesture of unwavering commitment, the company said it remains open to discussions with the TLB lenders and is ready, willing and able to continue making payments under the TLB if the lenders withdraw their ill-conceived actions and honour the terms of the agreement.

The company said its robust financial health, highlighted by recent successful fundraising efforts, ensures that this disagreement with the lenders does not pose any significant impact on its operations or hinder its ability to continue providing innovative learning experiences to millions of students worldwide. “Byju’s remains focused on its mission to transform education and looks forward to resolving this matter swiftly, while steadfastly advancing its vision for the future of education,” said the company.

The Bengaluru-headquartered company’s US entity Byju’s Alpha was recently sued in Delaware by an agent of lenders to whom the company owes $1.2 billion. This happened after months of negotiations between creditors and Byju’s, according to the sources. The lawsuit was filed by GLAS Trust Company and investor Timothy R Pohl against Byju’s Alpha, Tangible Play, and Riju Raveendran. The two companies being sued are units of Think and Learn Private, edtech firm founded by Byju Raveendran.

Lenders have reportedly accused the company’s entity, which has no employees, of hiding $500 million as part of a battle between creditors and the edtech firm. The allegation was made during a court hearing last month in Delaware, where Alpha faces a lawsuit over who should control the firm.

According to sources, the company had a deadline to pay $40 million interest on its loan of $1.2 billion. They said the company has plans to meet the June 5 deadline. A Bloomberg report said the situation is still fluid and failure to pay on that date means the $1.2-billion loan will default.

Meanwhile, Byju’s has raised Rs 2,000 crore ($250 million) from Davidson Kempner Capital Management, a US-based investment firm, in a structured instruments deal, according to people familiar with the matter. The funds have been raised against convertible notes issued by Aakash. Davidson Kempner Capital Management will get a stake in the upcoming market debut of Aakash. This is part of an ongoing $1-billion funding round the firm is raising in a mix of equity and structured instruments at a valuation of $22 billion. Around $700 million of $1 billion is expected to come through equity, for which Byju’s is in talks with existing and new investors. These include investors like Abu Dhabi’s sovereign wealth fund ADQ.

The funding is expected to help Byju’s support the IPO plans of AESL. Byju’s acquired Aakash in 2021 for $1 billion.

But challenges for Byju’s are beyond just raising funds. The company is yet to file its 2021-22 results with the Ministry of Corporate Affairs (MCA). Other edtech unicorns, such as Unacademy, upGrad, Vedantu, PhysicsWallah, and Eruditus, have already filed their FY22 financials. The company should have filed its annual results with the MCA by September last year. But, it has been delaying that for over seven months now. Before this, the company filed its FY21 results in September 2022, after a nearly 18-month delay.