How Byju's US lenders ran into a hedge fund wall

Byju’s, which borrowed $1.2 billion in the US in November 2021, moved $533 million of it to Camshaft Capital Fund, a three-year-old hedge fund. When Glas Trust Co., the trustee representing 37 lenders, pressed for the whereabouts of this money, the hedge fund disclosed for the first time that Alpha is no longer a limited partner in the fund, it had a zero-balance capital account, and hence the fund cannot meet Byju’s Alpha’s demand for the records.

 

“Byju’s Alpha is a former limited partner of Camshaft Capital Fund, LP, and was never a limited partner of any other Camshaft entity," David Massey, a lawyer representing Camshaft wrote in a letter dated 4 December to Timothy Pohl, the representative appointed by the lenders. “As such, Byju’s Alpha’s demand for books and records is rejected because Byju’s Alpha has no statutory right or standing to demand books and records from Camshaft Capital Fund, LP (or any other Camshaft entity identified in your letter). Nor does Byju’s Alpha have any rights under the Limited Partnership Agreement between Byju’s Alpha and Camshaft Capital Fund, LP, as a former limited partner with a zero-balance capital account." Mint has seen a copy of Camshaft’s letter to Pohl.

Byju’s set up the special purpose vehicle Alpha, which received $1.2 billion from lenders in 2021. Between April and July 2022, Byju’s Alpha deposited $533 million with Camshaft Capital Fund and Alpha became a limited partner in Camshaft Capital Fund.

But the creditors were peeved that Byju’s had failed to get WhiteHat Jr, a company bought by Byju’s for $300 million, to stand as guarantor for the $1.2 billion loan, and seized control of Alpha in March this year. The creditors appointed Pohl as the sole director and removed Riju Raveendran, the younger brother of Byju Raveendran, as the director.

Byju’s challenged this decision of lenders taking control of Alpha in a Delaware court; last month, the Delaware court stamped its approval on the creditors’ decision appointing Pohl as the sole director of Alpha.

“An offshore subsidiary remains the beneficiary of the money invested in high-security fixed income instruments invested with a multi-hundred billion dollar fund in the US," said a spokesperson for Byju’s, declining to share the name of the entity. “[A]s a commercially prudent borrower, and like any other large corporate treasury, in compliance with the Credit Agreement, Byju’s has safe-guarded the referenced funds with the global fund," said Byju’s.

“Byju’s would like to clarify that there is no requirement to maintain cash as collateral for the lenders under the credit agreement, and emphasize that its credit agreement with the lenders does not prohibit or restrict the usage, movement or investment of funds disbursed thereunder," the spokesperson added.

The creditors have been locked in a legal battle with Camshaft in a Miami court to disclose the location of the money. “However, an amended complaint by Camshaft on 15 December, the three-year-old hedge fund, said Byju’s transferred all the “investment interests" as a limited partner from Camshaft Capital Fund to a third party in the first three months of 2023, and that details of this transaction cannot be shared with a former limited partner.

An email sent on Friday to Pohl and Massey, partner at Hogan Lovells, the counsel for Camshaft, went unanswered.

“This is poor governance because Byju’s until now has not made any disclosure of this transaction, nor does it want to share with its investors," said Amarjit Chopra, a former president of the Institute of the Chartered Account of India (ICAI).

The creditors filing a case against Byju’s in May in Delaware prompted Think and Learn Pvt. Ltd, which runs the business under Byju’s, to countersue this group of lenders in the New York Supreme Court in June. Byju’s claimed that creditors’ claims of default are “bogus".

In September, Glas Trust fired a fresh salvo, filing a complaint in a Florida court alleging that Byju’s Alpha transferred $533 million to Camshaft Capital Fund, a Miami-based hedge fund, “to conceal the whereabouts" of the cash.

The legal troubles faced by Byju’s are among various challenges faced by the edtech giant that was once the country’s most valuable privately held firm, with a valuation of $22 billion.

Now, at least one of its investors—Prosus—has valued Byju’s at $3 billion.

At the heart of the troubles at Byju’s is the company’s aggressive expansion in 2020 and 2021, when it snapped up 10 companies. Questions over corporate governance and poor execution have now forced Byju’s to sell some of the company’s assets to repay loans.

Now, Byju’s, which has been forced to let go of over half of its workforce, is looking to sell a few of the companies it bought in the past, to clear its dues.