Byju's, the world's highest-valued edtech company, is gearing up for an important week of discussions with its lenders as it seeks to ease growing tensions, people aware of the matter told Moneycontrol.
The company intends to arrange individual discussions with its lenders to explore mutually beneficial resolutions as the matter currently remains under legal review in the US, the people said, requesting anonymity. The scheduled calls, originally slated for June 12, will be taking place over the course of the next two to three days, and will involve a majority of Byju's lenders, the people added.
Byju’s declined to comment. Queries sent to Houlihan Lokey Inc, a law firm hired by Byju’s lenders to advise them on negotiations, did not elicit a response.
“The dispute appears to be around the timeline of acceleration of the TLB. Acceleration is not very uncommon, it is there typically in the terms of the contract. But what is not common is the dispute regarding acceleration and considering the scale of it, I think both parties might look to negotiate,” said a securities lawyer, requesting anonymity.
The upcoming discussions hold immense significance for Byju's, as the company, one of the world's largest startups, has been in a prolonged dispute with its lenders for over six months. The loan in question, amounting to $1.2 billion, stands as one of the largest unrated term loan B (TLB) offerings that Byju's secured in November 2021.
Last week, Byju’s skipped paying $40 million in interest on the TLB and instead filed a case in the New York Supreme Court against one of its lenders, Redwood Management LLC. The company termed Redwood as “predatory” and issued a notice to disqualify it, following which the investment company would be restrained from exercising critical rights under the TLB.
Just a couple of days after Byju’s moved the court in New York, a group of lenders, collectively owning more than 85 percent of the TLB, issued a statement calling the case “meritless” and characterised it as an effort by the company to avoid fulfilling its obligations.
Byju's move to sue its lenders followed a lawsuit by them in May in a Delaware court, when they accused Byju’s Alpha Inc, a wholly owned subsidiary of Byju’s that raised the TLB, of hiding $500 million from them. Byju’s had then denied these allegations.
“Now, the lenders will file for a response. If Byju’s wins the case, they will get more breathing space and that will be critical for the company considering that they need that time to accumulate funds,” the lawyer quoted above said.
“If the court finds Byju’s case without merit, they will just throw it out and Byju’s will then have to pay the amount immediately,” he added.
To be sure, Byju’s has been engaging in discussions with its lenders since December last year when the company sought for easier terms on the loan as the company was looking to save costs with an aim to achieve profitability.
But the company’s lenders asked for quicker part payment of the $1.2 billion loan after Byju’s failed to meet certain conditions, including a September 2022 deadline for filing its results for the year ended March 31, 2022, Bloomberg News reported. Earlier this month, the lenders scrapped these negotiation talks after filing a case against the company in the Delaware court.
Byju's soared to new highs in March last year, when it raised a massive $800 million round at a $22-billion valuation. But since then, the company has come under fire for a number of reasons including accounting irregularities, tussle with lenders, mass layoffs and mounting losses. Byju's has raised $250 million at a flat $22-billion valuation since then, and is in talks to raise $700 million more at the same valuation.
Byju's offices in Bengaluru were also searched by India's financial probe agency Enforcement Directorate in April under provisions of the Foreign Exchange Management Act. The company is yet to file audited results for FY22 (2021-22).
For FY21 (2020-21), Byju's reported a huge jump in losses to more than Rs 4,500 crore, while its revenue dropped marginally, surprisingly, as FY21 was the first year of Covid that gave online learning companies a shot in the arm.
Founded over a decade ago by former teacher Byju Raveendran, Byju’s has raised over $5 billion, most of which was in the past five years.
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