Saturday, February 24, 2024

Accelerated Problems

The problems of the edtech giant are increasing. After coming under the target of law enforcement agencies in India, the company has got into legal trouble in America. This comes at a time when it is facing an unprecedented debt crisis

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Edtech giant Byju’s has filed a suit in the New York Supreme Court challenging the $1.2 billion term loan-B (TLB) acceleration and disqualification of Redwood Capital Management. An “accelerated clause” is a clause included in the loan agreement in which the borrower has to repay the loan immediately under certain conditions. This clause is generally invoked when the borrower is in material breach of the loan agreement.

Byju’s said that Redwood made a significant purchase contrary to the terms of Term Loan-B, hence Byju’s took the decisive action. The company had to approach the court following extortion strategy adopted by lenders led by Redwood. Byju’s claimed that this included threats to confiscate the company’s assets and demands for early repayment of the loan. Byju’s said the lenders took control of Byju’s Alpha and appointed their management. Keeping all this in mind, the company initiated legal proceedings in Delaware to protect its rights.

The company said in a statement that on March 3, TLB lenders illegally accelerated TLB due to some alleged non-monetary and technical defaults. The legal proceedings are now underway in Delaware and New York and it is clear that the entire TLB is disputed. Thus, payment cannot be expected from the company. Byju’s decided not to make any further payment, including interest, to the TLB lenders until the matter is settled by the court.

Earlier, Byju’s lending firm GLAS Trust Company and investor Timothy R Paul had filed a lawsuit against Byju’s US units for delay in payment. In this case, allegations were levelled against Byju’s Alpha and Tangible Play. American lenders said both these firms sent an amount of $500 million from Byju Alpha to another company. The firms are subsidiaries of Byju’s parent company Think and Learn Pvt Ltd. Byju’s, however, alleged that its lenders illegally pressured it to repay the $1.2 billion loan early in March and also took control of Byju’s Alpha.

Byju’s says it is still ready to negotiate with its lenders, but for this the latter will have to withdraw their steps and follow the terms of the term loan.

Byju’s has been facing a financial crisis since the Covid-19 pandemic. The company tried several times to restructure its loans, but has not been successful. The lenders had taken control of Byju’s US unit after talks failed to yield any results.

Byju’s had previously missed deadlines for filing financial accounts and its offices were searched by India’s agency that investigates violations of the country’s foreign exchange policy. Byju’s attracted investment from Silver Lake Management and Naspers Ltd, as well as from Tiger Global Management and Mark Zuckerberg’s Chan Zuckerberg Initiative. Byju’s valuation had reached $22 billion, and last year, the company considered merging with a special-purpose acquisition company to go public. However, Byju’s has disputed the idea that its decision not to make interest payments indicated financial difficulties.

According to US media, the lenders filed a lawsuit against Byju’s in Delaware and asked the court to take control of Byju’s Alpha. The lenders claimed that because of a default earlier this year, they had the authority to put their representative, Timothy R Pohl, in charge. The lenders also alleged in the court that Byju’s took $500 million from its US arm.

However, Byju’s said the transfers were fully in compliance with the terms of the credit agreement as well as rights and responsibilities agreed upon by the parties. It had raised $1.2 billion for specific purposes and was using the money for those purposes only. However, it appears that the lenders have been motivated to “accelerate repayment” of the entire loan. Byju’s has now challenged this “acceleration”.

Byju’s said it could not release the payment due to several and justified reasons and has written to lenders that interest will be paid provided the “acceleration” and Delaware litigation is withdrawn.

Last month, Byju’s raised a $250 million loan from US-based investment manager Davidson Kempner Capital Management and is in talks with other investors to secure an additional $700 million in funding. The company said that on March 3, the TLB lenders unlawfully accelerated TLB due to certain alleged non-monetary and technical defaults and unfair practices. Byju’s further noted that TLB lenders made an unsuccessful attempt in the Delaware proceedings to deprive Byju’s of its contractual right to “disqualify” lenders primarily engaged in opportunistic trades.

Byju’s raised $1.2 billion in debt for its international expansion through Byju’s Alpha in November 2021, which also includes acquisitions. However, the company’s relations with its lenders soon began to sour. Like any loan agreement, the contract between Byju’s and its lenders contained several conditions. One of these was that Byju’s would have to file its audited financial statements on time.

However, the company filed its FY21 statement in September 2022 after a delay of 18 months. It is yet to file its audited financial statement for FY22, which was also due in September 2022. This put Byju’s in breach of the terms of the loan, but the company said it was only a “technical default” and it was making regular interest payments.
The Byju’s app was developed by Think and Learn Pvt Ltd, a company established by Byju Raveendran and Divya Gokulnath. In August 2015, the firm launched Byju’s: The Learning App. In January 2022, the company joined Simplilearn, Unacademy, upGrad, PrepInsta Prime and Vedantu to become one of the founding members of Internet and Mobile Association of India’s (IAMAI) India EdTech Consortium. In March 2022, it signed a contract with Qatar Investment Authority to establish a new ed­tech company and a R&D centre in Doha.
In August 2022, the Ministry of Corporate Affairs sent a letter to Byju’s seeking explanation for non-filing of its audited financial statements for the financial year ending March 2021. According to Byju’s, the delay was due to the challenge of consolidating the accounts of its acquisitions during that year.

—By Shivam Sharma and India Legal Bureau

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