BYJU’S lawsuit against its term loan lenders was labelled ‘meritless’ by the consortium. The lenders, owning 85% of the $1.2 billion loan, accused BYJU’S of evading obligations and payments. Despite attempts to find a solution, the lender group retains the right to enforce the credit agreement.
The consortium, comprising 21 esteemed institutional investors, has collaborated constructively with BYJU’S for nine months, aiming to address defaults. If BYJU’S intentionally defaults, the lender group reserves all rights to enforce the credit agreement.
Houlihan Lokey advises the term loan lenders, while Kirkland & Ellis LLP, Cahill Gordon & Reindel LLP, and Shearman & Sterling LLP provide legal services. BYJU’S conflicts with creditors prompted a complaint to challenge loan acceleration and disqualify Redwood, one of the lenders, filed with the New York Supreme Court.
Bloomberg reported that BYJU’S had to pay approximately $40 million as a quarterly interest payment on the loan by the June 5 deadline.
In a subsequent announcement, BYJU’S announced its decision to withhold additional payments, including interest, to the term loan B lenders until the court resolves the matter. However, BYJU’S expressed its readiness to engage in discussions and resume payments if the lenders withdraw their actions and honour the agreement.
Background
Earlier this week, BYJU’S filed a New York Supreme Court complaint against Redwood, a lender involved in the $1.2-billion term loan B (TLB). The edtech firm alleges predatory tactics and seeks to contest the acceleration of the loan while aiming to disqualify Redwood.
According to BYJU’S, Redwood, primarily engaged in distressed debt trading, acquired a substantial portion of the TLB, violating its terms. The Bengaluru-based company claims the TLB lenders wrongfully enforced the loan’s acceleration based on alleged non-monetary and technical defaults.
Following the acceleration, the TLB lenders took additional enforcement measures, including seizing control of BYJU’S Alpha and appointing their management. Moreover, acting through their agent GLAS Trust Company, the lenders initiated litigation in Delaware to validate their actions, which BYJU’S deems unwarranted.
During the Delaware proceedings, the TLB lenders attempted unsuccessfully to deny BYJU’S contractual right to “disqualify” lenders primarily involved in opportunistic trades. The Delaware court ruled against the lenders, stating they failed to demonstrate irreparable harm or the required balance of harm to restrict BYJU’S contractual right.
Lenders’ lawsuit against BYJU’S
The lenders filed a lawsuit against BYJU’s Alpha in Delaware court last month. They accused BYJU’s of hiding $500 million from them. The edtech company, on the other hand, denied the charges.
Byju’s Alpha, Tangible Play, and Riju Ravindran are all affiliated with Think and Learn Private, the edtech corporation created by Byju Raveendran. All of them are alleged under the lawsuit.
BYJU’S Alpha, the edtech unicorn’s wholly-owned subsidiary, raised the loan in November 2021. This was the largest TLB placed by an Indian startup at the time of the surge, although the loan was unrated.
Not the only problem for BYJU’S
The edtech player is dealing with multiple challenges. In April this year, the Enforcement Directorate (ED) raided it for potential FEMA violations.
According to the ED seizure report, the authorities seized several damning documents and digital material. Additionally, they uncovered other FEMA violations. The corporation rejected the claim, and the investigation is still underway.
In the recent past, the company’s valuation dropped to 62% in value as BlackRock slashed the edtech giant’s valuation to $8.4 billion from a peak of $22 billion.
This is a significant fall from Byju’s highest valuation of $22 billion in April 2022. Previously, BlackRock decreased the valuation to $11.5 billion as of December 31, 2022.
BlackRock valued its 2,279 shares in Byju at $4,043,471 as of March 31, 2023, putting the company’s fair value at $8.4 billion. This was a considerable fall from the previous April 2022 valuation of $22 billion.
