In a Unique Case, BYJU's Defaults on Repayment of US$1.2bn Term Loan but Sues Lenders in US: Report
Moneylife Digital Team 06 June 2023
Terming demands for prepayment from lenders for its US$1.2bn (billion) term loan B (TLB) as ‘hawkish’, education technology (ed-tech) company BYJU's has filed a suit in a New York court against a group of TLB lenders, say reports.
In what is possibly the first action of its kind by an Indian company, BYJU's has also issued a notice to one of its creditors, Redwood, disqualifying it as a lender, says a report from CNBCTV18
Quoting the ed-tech, the report says, "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-lenders."
According to a report from Bloomberg, the ed-tech company that provides services to more than 150mn (million) students around the world did not pay US$40mn in interest due Monday on a US$1.2bn loan. The company, led by former teacher Byju Raveendran, says in a statement that it has elected not to make further payments on the so-called TLB and filed a complaint concerning the facility to New York.
The situation between BYJU's and a group of its hawkish TLB lenders, who trade in distressed debt, highlights the challenges faced by start-ups navigating the complex and opportunistic world of finance, where negotiations can quickly turn adversarial.
According to another report from Bloomberg, creditors to BYJU's have pulled out of negotiations with the company to recast on a US$1.2bn loan. "The talks were called off after the creditors moved a Delaware court, accusing the firm of hiding $500mn of funds raised. Lenders can now sell the term loan B securities of the firm as the restraint that came as part of the negotiations is lifted," the report says, quoting people familiar with the matter. 
In a statement, BYJU's says, "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 cannot be expected to and has elected not to make any further payment to the TLB lenders, including any interest, until the court decides the dispute."
As a non-operative entity in the US, BYJU's Alpha, a subsidiary of the ed-tech, has become the target of the lenders' legal actions. BYJU's Alpha was solely created as a borrowing entity to facilitate the borrowing process of the TLB.
Despite BYJU's willingness to step up to a higher interest rate and offer partial payment of the principal, the lenders proceeded with litigation, intensifying the ongoing back-and-forth between the two parties.
Quoting a source close to the legal proceedings, a report from IANS says, "The genesis of this conflict lies in the renegotiation of the TLB contract, which was signed in good faith by both parties in 2021. However, the lenders' subsequent demands have been nothing short of egregious. As a global leader in ed-tech, BYJU's has decided to take a stand against these unreasonable tasks, demonstrating its unwavering commitment to safeguarding the interests of its stakeholders."
According to the report, the lenders, who decided to proceed with litigation, also made a bewildering claim suggesting that BYJU's 'moved' US$500mn from BYJU's Alpha, alleging a breach of the existing arrangement. BYJU's has vehemently denied this 'baseless' allegation, emphatically stating that it has meticulously adhered to the terms of its contractual obligations in complete compliance with the agreed-upon rights and responsibilities outlined in the contract.
BYJU's maintained that it has consistently met all its financial and fiduciary obligations. As evidence of its financial strength, BYJU's recently concluded a successful funding round, securing a remarkable US$250mn.
The company was reportedly on the verge of closing an even larger funding round in the coming weeks, further solidifying its financial position.
The event serves as a stark reminder of the potential pitfalls faced by Indian companies raising capital in the US and underscores the need for transparent and fair lending practices.
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