Byju’s lenders sue to take reins of US arm

New Delhi: Byju’s lenders have taken legal action against the edtech behemoth, seeking control over the operations of US subsidiary, Byju’s Alpha, alleging that it had transferred a sum of $500 million out of the subsidiary. Byju’s, however, defended its actions, asserting that it had not violated any credit agreement.

In November 2021, Byju’s parent, Think & Learn Pvt Ltd, had secured a significant $1.2 billion term loan B deal from overseas lenders.

The conflict escalated due to the renegotiations over the interest rates and partial prepayment proposals that was triggered by a breach in covenants after Byju’s failed to submit its financial statements for the financial year 2022 by September last year.

“An interim court order has asked to maintain “status quo in relation to Byju’s Alpha,” a Byju’s spokesperson said.

According to the spokesperson Byju’s Alpha is “a non-operative US entity which was set up to receive the Term Loan B, with no employees”. The loan was raised with the specific purpose to drive growth and expand globally and Byju’s “is free to transfer and use the funds as necessary”, he added.

“The litigants have made bewildering claims that Byju’s “moved” $500 million from Byju’s Alpha, insinuating that it was somehow wrongful. This is entirely incorrect. We categorically deny these allegations. The transfers were in full compliance of and did not contravene any terms of the parties’ credit agreement and the agreed-upon rights and responsibilities. In fact, even lenders have not alleged that the transfer was not permitted under the parties’ existing contractual arrangement.”

“Lenders have claimed that because of a default earlier this year , they have the right to put their representative Timothy R. Pohl in charge,” according to a Bloomberg report on court proceedings on 18 May.

Glas Trust Co, the administrative agent and the collateral agent to Byju’s lenders has filed the lawsuit naming Byju’s Alpha, Riju Raveendran, the brother of founder Byju Raveendran and Tangible Play Inc, the report added.

Tangible owns children’s educational gamemaker Osmo which Byju’s had acquired in 2019 for $120 million.

“Byju’s 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,” Byju’s said on Friday.

Although the firm did not offer any clarifications on the nature of technical defaults, a person in the know said *one of them stems from the non-disclosure of FY22 financial statements.

The “court has not made any final determination against Byju’s Alpha, including in relation to the transfer. The order does not have any bearing on any other subsidiary of Byju’s anywhere in the world,” the spokesperson added.

Byju’s is aiming to raise a $1 billion in capital through a mixture of equity and debt capital.

A part of this capital - around $250 million was raised last week from Davidson Kempner through structured agreements, in a deal that promises equity-like returns, at the time of Aakash’s future IPO, a person with knowledge of the deal said, asking to remain anonymous.

“The case is a pressure tactic to force Byju’s on operational points that the company has not yet conceded,” the person cited above said. Byju’s may consider paying down around $100 million to $200 million of the loan, the person added.

A steering committee of lenders earlier rejected an offer to increase the rate of interest on the loan, instead asking the company to pre-pay a part of the $1.2 billion loan, a previous Bloomberg report said.