Two tumultuous days at ed-tech giant Byju’s have culminated in the firm suing some of its lenders in the New York Supreme Court – on Monday (June 5), it failed to pay interest of $40 million on its term loan B of $1.2 billion, and the next day, it initiated legal action against the lenders, calling their tactics “high handed” and “predatory”. This is perhaps the first instance of an Indian start-up suing its own lenders after failing to pay the interest amount. Byju’s, the world’s most valuable ed-tech firm, has also decided to halt payment to the lenders. In particular, it accused US-based hedge fund Redwood of buying the company’s distressed debt “with the intent of making windfall gains”. In May, Byju's lenders had filed a suit against the firm in a Delaware court, accusing it of defaulting on payments. Byju’s, however, has said that the defaults were “non-monetary and technical” and that the lenders used it as an excuse to take control of its US entity, Byju’s Alpha, and appoint their management. But how did it reach this stage? First, what is a term loan B? A term loan B, or In TLB, is a debt instrument through which start-ups raise money that allows for a flexible repayment of their dues to creditors. Generally, borrowers are not required to pay the principal amount upfront, and unlike a regular loan, can pay a large amount at the end of the loan period. This allows borrowers the flexibility to spend money and invest in growing their business. When did Byju’s raise such a loan? In November 2021 the firm raised $1.2 billion through a term loan from the overseas market. It raised the amount to fund general corporate purposes offshore, including supporting business growth in the North American market, which is a key to the firm’s global aspirations. This was before the company had filed its financial reports for FY’21 with the government – which it finally did after a delay of eighteen months. The numbers were dismal, signalling a cash crunch at the company, later compounded by a weak market owing to geopolitical tensions and rate increases. As per its FY’21 results, Byju’s lost more than Rs 12 crore everyday. It posted a revenue of Rs 2,428 crore as its losses in the fiscal rose 17-fold to over Rs 4,500 crore, the highest ever posted by an Indian start-up. Why has Byju’s initiated legal action against its lenders? In a statement, Byju’s said that on March 3, the lenders “unlawfully” accelerated the TLB on account of certain alleged non-monetary and technical defaults. “On the back of this unconscionable acceleration of the TLB, 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. In the Delaware proceedings, the TLB lenders attempted to deprive Byju’s of its contractual right to ‘disqualify’ lenders engaged primarily in opportunistic trades, the firm said, claiming that 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. Despite this, Byju’s claimed, the lenders continued to conduct themselves in a “high-handed manner”. It said that they 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 TLB lenders’ agent has even refused to provide identities of the TLB lenders to Byju’s – something Byju’s is entitled to under the TLB. Additionally, the TLB lenders have consistently taken measures to smear Byju’s reputation. At the same time, Redwood – a lender known to primarily trade in distressed debt – consistently increased its exposure by acquiring a sizable stake in the TLB with the intent of making windfall gains,” the company added.
