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

Education giant Byju’s said it took decisive action to file a complaint with the New York Supreme Court to challenge the acceleration of the $1.2 billion Forward B (TLB) loan and to disqualify Redwood, which contravened the terms of the TLB, when it purchased a significant portion of the loan while trading privately. Fundamentals of bad debts. Byju’s was forced to take these measures after a series of predatory tactics by the lenders, led by Redwood.

Byju said that on March 3, 2023, TLB lenders illegally accelerated TLB due to some alleged non-monetary and technical defaults. “Against the backdrop of this unreasonable acceleration of TLB, TLB’s lenders have taken unwarranted enforcement measures including taking control of Byju’s Alpha and appointing its own management,” the company said. “Not resting content with this, the TLB lenders (acting through their agent, the GLAS Trust Company) have commenced litigation in Delaware in an effort to lend credibility to these proceedings.”

In Delaware’s proceedings, Byju said TLB’s lenders tried (unsuccessfully) to deny the company its contractual right to “exclude” lenders primarily engaged in opportunistic deals. The Delaware court rejected that attempt, she said, ruling that the TLB lenders “did not show irreparable harm or the balance of damages as required to support a clause restricting” this contractual right for Peugeot.

Despite this, Byju’s said the TLB lenders continued to act in a bossy manner. They issued a notice demanding immediate payment of the full amount under the TLB, even though they knew this alleged expediting was under challenge in court. The company said the TLB lenders agent refused even to provide the identities of the TLB lenders to Byju’s — something Byju is entitled to under TLB. In addition, TLB lenders have continually taken measures to discredit BYJU.

At the same time, the company said, Redwood — a lender known for trading in distressed debt — has continually increased its exposure by acquiring a significant stake in TLB with the intent of making a windfall.

“In the wake of all these actions, Byju had no choice but to commence proceedings in New York – the contractually agreed forum – for the acceleration challenge,” the company said. Besides, Byju also issued a notice to the Redwood Entities excluding them. Once this exclusion becomes effective, Redwood will be restricted from exercising critical rights under the TLB. Byju said she has so far shown remarkable restraint by refraining from using the exclusion clause, instead striving for months to reach an amicable solution with the hawks of merchants and lenders.

Given that legal proceedings are now being conducted on foot in both Delaware and New York, it is clear that the entire TLB is in dispute. As such, Byju’s said it cannot be expected and has chosen not to make any further payments to the TLB lenders, including any interest, until the dispute is adjudicated by the court. As passed on to the TLB lenders, Byju said it remains financially strong with large cash reserves. As a sign of firm commitment, the company said it remains open to discussions with TLB lenders and is ready, willing, and able to continue making payments under the TLB if the lenders withdraw their misdeeds and meet the terms of the agreement.

The company said its strong financial health, highlighted by recent successful fundraising efforts, ensures that this dispute with lenders poses no significant impact on its operations or hinders its ability to continue to provide innovative educational experiences to millions of students around the world. “Byju remains focused on its mission to transform education and looks forward to quickly resolving this issue, while steadily advancing its vision for the future of education,” the company said.

The Bengaluru-based company’s US entity Byju’s Alpha was recently sued in Delaware by an agent of the $1.2 billion lenders the company owes. This came after months of negotiations between the creditors and Peugeot, according to the sources. The lawsuit was filed by GLAS Trust 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, the education technology company founded by Byju Raveendran.

The corporate entity, which has no employees, was reportedly accused by the lenders of withholding $500 million as part of a battle between creditors and the education technology company. The claim came during a court hearing last month in Delaware, where Alpha faces a lawsuit over who should control the company.

According to the sources, the company has a deadline to pay $40 million in interest on its $1.2 billion loan. They said the company has plans to meet the June 5 deadline. The Bloomberg report stated that the situation remains resilient and that failure to repay on that date would mean the $1.2 billion loan would default.

Meanwhile, Byju’s raised 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 money was raised against a convertible bond issued by Akash. Davidson Kempner Capital Management will acquire a stake in Aakash’s first market appearance. This is part of the $1 billion in ongoing funding the company is raising in a mix of equity and structured instruments worth $22 billion. About $700 million of the $1 billion is expected to come through equity, which Byju’s is in talks with existing and new investors. Among them are investors such as ADQ, Abu Dhabi’s sovereign wealth fund.

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

But Byju’s challenges go beyond fundraising. The company has yet to file its results for 2021-22 with the Ministry of Corporate Affairs (MCA). Other education technology unicorns, such as Unacademy, upGrad, Vedantu, PhysicsWallah, and Eruditus, also submitted their financials for FY ’22. The company should have submitted its annual results to MCA by September of last year. But, that has been delayed for more than seven months now. Prior to that, the company submitted its results for fiscal year 21 in September 2022, after nearly 18 months of delay.