A consortium of US-based lenders, who provided a $1.2-billion Term Loan B (TLB) to Byju’s, has been granted control over Alpha Inc, a non-operative US subsidiary established by the edtech start-up to receive the TLB, by a Delaware court.
Byju’s has faced a legal battle with TLB lenders due to repayment delays. The term loan, taken during the company’s growth period in 2021 to support acquisitions, has been a major issue for the company as it faces cash flow problems. Byju’s has spent nearly $3 billion on 13 deals between 2020-21, and the TLB was primarily raised to fund these acquisitions. However, as growth slowed and equity became scarce, the company found itself in a difficult situation due to its high-risk strategy.
In June, Byju’s initiated legal action against the acceleration of the TLB and the disqualification of Redwood, claiming predatory tactics employed by the lenders. The company accused the lenders of unlawfully accelerating their account and attempting to take control of Byju’s Alpha by appointing their own management.
The case has reached a critical point as Delaware Chancery Court Judge Morgan Zurn has ruled in favor of the lenders, stating that they correctly cited a default on the loan and were legally entitled to take control of the unit. The judge also allowed the lenders to replace Riju Raveendran from Alpha’s board. Byju’s complaint against the appointment of Timothy Pohl as the sole director of Byju’s Alpha was dismissed by the judge.
The loan terms allowed the lenders to assume control of pledged Byju’s Alpha shares in the event of a default, as stated in the judge’s ruling. After the company unit failed to secure the Indian government’s endorsement as a loan guarantor, the lenders issued a notice of default in March. Pohl was appointed as the sole director of Byju’s Alpha and took on the role of CEO.
To meet the repayment obligations of the term loan, Byju’s has put two of its group firms, Epic and Great Learning, up for sale. The company is in advanced talks to sell Epic for approximately $400 million to Joffre Capital Ltd.
In September, Byju’s presented a repayment proposal to its lenders, offering to repay the entire term loan within six months. The company plans to repay $300 million within three months if the amendment proposal is accepted and the remaining amount in the subsequent three months. Byju’s aims to raise close to a billion dollars from these divestments.
If the amendment proposal is accepted, the proceeds from the sale of Epic will be used to repay the first tranche of $300 million.
