Byju's, lenders hit pause on legal battle, aim for out-of-court resolution

Byju's, along with its term loan B lenders, has decided to delay their ongoing legal dispute in the United States courts until October 6. This extension is intended to provide more time for them to pursue an out-of-court resolution, as per media reports. The parties are currently engaged in discussions to reach a forbearance agreement, and these negotiations are still in progress, according to a court order dated August 24.

Startup's legal battle

The origin of the dispute dates back to June when Byju's filed a lawsuit against the US-based investment management firm Redwood. Byju's challenged the acceleration of a $1.2 billion (Rs 9,930.54 crore) term loan B (TLB) facility and sought to disqualify the lender, accusing them of "predatory tactics". Additionally, Byju's skipped an interest payment of approximately $40 million (Rs 331.07 crore) on the loan, making it the only Indian startup to default on a US Dollar loan.

Byju's filed this lawsuit in the New York Supreme Court, alleging that Redwood had acquired a significant portion of the loan in violation of the loan facility conditions, primarily dealing in distressed debt. As legal proceedings were underway in both Delaware and New York, the entire TLB came under dispute, according to a statement from Byju's. The edtech company stated that it would not make any further payments, including interest, to the TLB lenders until the court resolves the dispute.

Term loan B (TLB) is a type of loan offered by institutional investors with the primary objective of maximising long-term returns. TLB borrowers are not obligated to pay the principal upfront; instead, they can make a substantial payment at the end of the loan term. Both parties are currently negotiating new terms, which include upfront payments of $200 million (Rs 1,655.37 crore) and an interest rate of 12 to 13 per cent, with a limited tenure of three to five years.

Lender group critique

In June, a group of ad hoc lenders, collectively owning more than 85 per cent of Byju's term loans totaling $1.2 billion (Rs 9,932.14 crore), criticised the lawsuit filed by the edtech company in the US court. They argued that Byju's lawsuit lacked merit and was an attempt to evade its contractual obligations, including required payments. This lender group, comprising 21 global institutional investors, had been working to address the company's “numerous defaults” over the past nine months and expressed their willingness to continue doing so in good faith. However, they reserved the right to enforce the credit agreement if Byju's deliberately remained in default.

In May, Byju's US entity, Byju's Alpha, was sued in Delaware by an agent representing lenders to whom the company owed $1.2 billion (Rs 9,932.14 crore). The lawsuit was initiated by GLAS Trust Company and investor Timothy R Pohl against Byju's Alpha, Tangible Play (Osmo), and Riju Raveendran. These two companies are subsidiaries of Think and Learn Private, an edtech firm founded by Byju Raveendran.

The lenders alleged that Byju's Alpha, which had no employees, concealed $500 million (Rs 4,138.08 crore) as part of a dispute between creditors and the edtech company. This allegation arose during a court hearing in Delaware, where Alpha faced a lawsuit over control of the company. Due to a default earlier in the year, the lenders claimed the right to appoint their representative, Timothy R Pohl, to oversee the company.