Byju’s files suit against lenders for ‘predatory tactics’; elects to not make further interest payments
Byju’s has filed a lawsuit against the lenders of its $1.2 billion term loan B, which it raised in the US in November 2021.
The company has also said that it will not be making any further interest payments until the case is resolved.
“Byju’s has taken the decisive action to file a complaint in the New York Supreme Court to challenge acceleration of the US$ 1.2 billion Term Loan B (TLB) and to disqualify Redwood Capital Management, who contrary to the terms of TLB, purchased a significant portion of the loan while primarily trading in distressed debt,” the company said in a statement.
The company also said that it had taken these measures following a series of “predatory tactics” by the lenders, led by Redwood.
These tactics, according to Byju’s, included threatening to seize the company’s assets and demanding that it make early repayments on the loan.
“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 dispute is decided by the court,” the company said.
Byju’s will remain open to discussions with TLB lenders and “is ready, willing and able to continue making payments under the TLB if the lenders withdraw their ill-conceived actions and honour the terms of the agreement,” the company said.
Byju’s has disputed the lender acceleration of repayment.
It said on March 3, the TLB lenders had “unlawfully” accelerated the repayment TLB “on account of certain alleged non-monetary and technical defaults,” the statement said.
Byju’s has been in default of the loan agreement because of its failure to file FY22 financial statements by September 2022 – a key covenant in the agreement it signed while raising the TLB.
The company has so far called it a “technical” default, noting that it had made all the coupon payments on time and was not in monetary default.
Separately, it had been in a fight in Delaware with the lenders. On May 19, the lenders accused Byju’s of draining its US entity Byju’s Alpha of the $500 million.
The edtech at the time defended its actions at the time saying that it was legal and not in breach of its agreements. At the time, Byju’s said “ it has fulfilled its contractual payment obligations as agreed upon in the term loan B signed in 2021 and has not missed a single payment.
There have been no monetary defaults on the loan.
The lenders’ allegations (which we dispute) concern merely insignificant technical and non-monetary defaults.”
On Tuesday, Byju’s provided additional information.
It said that Redwood had attempted to deprive Byju’s of its contractual rights to disqualify lenders in opportunistic trades.
The loan agreement allows for Byju’s to bar certain lenders from buying up the TLB debt, and Byju’s can disqualify these lenders – such as competitors – if it chooses to.
“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,” the company said on Tuesday morning.
“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.
Thereafter, Byju’s said that the lenders issued a notice demanding “ immediate payment of the entire amount under the TLB, despite knowing that this purported acceleration was under challenge before the court” the company said.
The TLB lenders’ agent also declined to identify the TLB lenders to Byju’s– something Byju’s is entitled to under the TLB, the company said.
“At the same time, Redwood – a lender known to primarily trade in distressed debt – consistently increased its exposure by acquiring a sizeable stake in the TLB with the intent of making windfall gains,” the firm said.
“In the wake of all these actions, BYJU’S was left with no option but to commence proceedings in New York – the contractually agreed forum – challenging the acceleration.
Along with this, BYJU’S has also issued a notice to the Redwood entities disqualifying them.
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-lenders,” the compay said.
Byju’s is backed by investors like Chan-Zuckerberg Initiative, Naspers, CPPIB, General Atlantic, Tencent, Sequoia Capital, Sofina, Verlinvest, IFC, Aarin Capital, TimesInternet, Lightspeed Ventures, Tiger Global, Owl Ventures & Qatar Investment Authority.
Bylivemint
