Byju’s lenders kick off bankruptcy proceedings in the US over $1.2-billion term loan

Bengaluru: A majority of edtech company Byju’s lenders have filed petitions in the US to initiate involuntary Chapter 11 bankruptcy proceedings against three US-based guarantors for a $1.2-billion term loan. 

The petitions have been filed against Byju’s reading platform Epic! Creations Inc., Neuron Fuel Inc., and Tangible Play Inc., the lenders said in a statement on Wednesday. Glas Trust Co. Llc, a US-based non-banking loan agency representing more than 85% of the lenders, has been appointed as an administrative agent for the loan.

“Since Byju’s began to default on its term loan obligations shortly after we provided Byju’s Alpha (the US subsidiary of Byju’s) with financing in 2021, we have made every effort possible to work productively and collaboratively to help Byju’s cure its multiple defaults,” the lenders said.

“However, it is clear that Byju’s management has no intention or ability to honour its obligations. Indeed, Byju’s founders, who also serve as the three directors of the overall enterprise—Byju Raveendran, Riju Ravindran and Divya Gokulnath—unlawfully diverted $533 million in loan proceeds, the whereabouts of which are still unknown,” the lenders said.

“From an impact standpoint for Byju’s, this move is likely to increase the financial turmoil the company has found itself in, in multiple jurisdictions,” said Saumya Brajmohan, partner at Solomon & Co law firm.

“From a compliance and lender standpoint, the move is significant as it deters organizations from siphoning money of lenders and forces organizations to financially audit themselves regularly and present all relevant information regarding the company’s financial position to investors and lenders,” Brajmohan added.

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In February, a day after Byju’s key investors initiated moves to oust co-founder and CEO Raveendran, Alpha Inc. filed for bankruptcy after defaulting on the debt of $1.2 billion. Byju’s US subsidiary initiated Chapter 11 proceedings in a Delaware court stating that it lacked funds to defend itself against litigation. 

Alpha listed its assets in the range of $500 million to $1 billion, with estimated creditors numbering between 100 and 199, according to the court documents.

A spokesperson for Byju’s did not immediately respond to Mint's queries.

Fire sale

In September, Mint reported that the edtech firm had placed two of its businesses—Epic and higher-education platform Great Learning—up for sale to pay its term loan B lenders. Byju’s had acquired these companies during the funding rush of 2021 to build its empire that came to be valued at $22 billion. 

The company’s valuation has since significantly eroded, with Byju’s itself diluting its estimated worth for its controversial $200-million rights issue.

Byju’s had raised $1.2 billion through a term loan B from overseas investors in November 2021, when interest rates were low. However, relations between Byju’s and its lenders have soured since, and interest rates have surged. The matter came to a head in June last year, when the company skipped an interest payment and took its lenders to court to prevent an acceleration of the repayment.

Also read | Byju’s: Battle for control

“As a result of Byju’s failed leadership and mismanagement, significant harm has been done to its businesses and the value of its assets. Shareholders and lenders of the company have seen the value of their investments deteriorate, employees and vendors have not been paid in a timely manner, and customers have suffered,” the lenders said in Wednesday’s statement.

They added that they were taking action to preserve the value of these assets. “We remain committed to their success and are ready to infuse the capital necessary to reorganise the businesses. Under the supervision of the court, the lenders hope that Epic, Neuron Fuel and Tangible Play will benefit from much-needed oversight while a plan is developed to maximise the value of these assets for the benefit of all stakeholders.”

Byju's fall from grace

Byju’s, once India's highest-valued startup, has been struggling to repay creditors and pay employees since students returned to in-person learning after the pandemic waned. 

Its debt has increased to more than $200 million in India and $200-250 million in the US, including the $40 million it's supposed to pay bondholders every quarter. 

The company has defaulted on payments to these bondholders since June 2023, and has been negotiating with them over the repayment of the $1.2 billion term loan B.

Also read | Mint Explainer: The mountain of legal cases that could bury Byju’s

Byju’s is also embroiled in legal tussles with other investors, including Prosus Ventures and Peak XV, over governance, financial mismanagement and compliance issues. Investors are also pushing for a change of leadership and a new board of directors.

Once valued at more than $22 billion, Byju’s been unable to access the $200 million it raised from a recent rights issue following a court order, even as dues to employees, lenders and vendors have increased.

Several employees, including top executives, have quit the company in recent months. In April, Byju’s India chief executive Arjun Mohan stepped down just seven months into his stint.

Also read | Longer talktimes, lower incentives: edtech turns up the heat on its employees