EdTech giant Byju’s has recently filed a lawsuit against its lenders concerning a $1.2 billion term loan. The legal action, which Byju’s says has been filed only after it “demonstrated remarkable restraint”, is targeted at investment management firm Redwood. The complaint has been filed in the New York Supreme Court to challenge the acceleration of the $1.2 billion term loan B.
Byju’s took a substantial term loan of $1.2 billion in 2021, to fund its numerous acquisitions as well as fuel its own hyper-growth phase. Redwood purchased a significant portfolio of the loan while primarily trading in distressed debt “with the intent of making windfall gains”. The loan, which is the largest unrated loan taken by a startup yet, has always been under question, with multiple reports talking about Byju’s inability to make payments against the same. The legal action now, comes right at the deadline of a $40Mn coupon payment, that the ed-tech startup had to clear by yesterday.
In its complaint, Byju’s is seeking the disqualification of Redwood, who 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,” the company said in a statement.
The company has alleged that TLB lenders issued a notice demanding immediate payment of the entire amount under the TLB, despite knowing that the purported acceleration was under challenge before the court.
“BYJU’S 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 remains financially robust with significant cash reserves,” the company said.
“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. 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,” Byju’s said in its statement issued on Tuesday.
“In the Delaware proceedings, the TLB lenders (unsuccessfully) attempted to deprive Byju’s of its contractual right to ‘disqualify’ lenders engaged primarily in opportunistic trades. 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.”
Byju’s said it had no choice but to take legal action. The company has also issued a notice to the Redwood entities, seeking their disqualification.
“Once such disqualification takes effect, Redwood would be restrained from exercising critical rights under the TLB. It is important to note that Byju’s 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-lender,” Byju’s added in the statement.
To say that Byju’s has been embroiled in a controversial financial termoil, would be a gross understatement. Earlier, the company was sued by lender GLAS Trust Company and investor Timothy R. Pohl for allegedly moving out nearly $500Mn from its US entity, Byju’s Alpha. Last year, the company delayed its India audited filings by nearly 18 months, after its auditor highlighted red flags and refused to sign off on company’s documents.