Byju's moves New York Supreme Court against 'predatory lender' challenging acceleration of Term Loan B

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Byju's, the world's most-valued edtech firm, has filed a complaint in the New York Supreme Court to challenge the acceleration of the $1.2 billion Term Loan B (TLB) it raised in November 2021, in the latest developments for the startup that has been in a tiff with its lenders for almost six months.

Byju's also is seeking disqualification of one of its lenders, Redwood, which it claimed was "predatory," and purchased a significant portion of the loan while primarily trading in distressed debt, which was contrary to the terms of the TLB, the company said. Byju's has had to take these measures following a series of predatory tactics by the lenders, led by Redwood, the company said in a statement on June 6.

Byju's decision to move the New York Supreme Court comes at a time when its wholly owned subsidiary, Byju's Alpha Inc, which raised the TLB in November 2021, was sued by lenders in the Delaware court. The lenders accused Byju's Alpha of hiding $500 million from them. Byju's denied the claims.

Given that legal proceedings are now on foot in both Delaware and New York, it is clear that the entire TLB is disputed, Byju's said. As such, Byju's cannot be expected to and has elected not to make any further payment to the TLB lenders, including any interest, until the dispute is decided by the court, the company added.

Byju's claimed that it remains "financially robust" with significant cash reserves and is open to discussions with the TLB lenders. The company also said, "Ready, willing, and able to continue making payments under the TLB if the lenders withdraw their ill-conceived actions and honour the terms of the agreement."

Byju's said TLB lenders unlawfully accelerated the TLB on account of certain alleged non-monetary and technical defaults on March 3, 2023. According to the company, the TLB lenders undertook unwarranted enforcement measures including seizing control of Byju's Alpha and appointing its own management and to "lend credence" to these actions, moved the Delaware Court.

In the Delaware proceedings, the TLB lenders unsuccessfully attempted to deprive Byju's of its contractual right to ‘disqualify’ lenders engaged primarily in opportunistic trades as the Delaware court rejected this attempt, ruling that the TLB lenders “did not demonstrate either irreparable harm or the balance of the harms as required to support a provision restraining,” the contractual right of Byju's, the company said.

Despite this, the TLB lenders continued to conduct themselves in a high-handed manner, Byju's claimed. 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, according to the company.

Byju's has claimed that the TLB lenders' agent has denied them the identities of the TLB lenders, which they are entitled to under the TLB agreement. Furthermore, Byju's stated that the TLB lenders have continuously undertaken actions to tarnish the company's reputation.

At the same time, Redwood, a lender known to primarily trade in distressed debt, consistently increased its exposure by acquiring a sizeable stake in the TLB with the intent of making windfall gains, Byju's claimed.

"In the wake of all these actions, Byju's was left with no option but to commence proceedings in New York – the contractually agreed forum – challenging the acceleration. Along with this, Byju’s has also issued a notice to the Redwood entities disqualifying them," the company said.

According to Byju's, once such disqualification takes effect, Redwood would be restrained from exercising critical rights under the TLB.

"It is important to note that Byju's had so far demonstrated remarkable restraint by refraining from utilising the disqualification clause, instead striving for months to achieve an amicable resolution with the hawkish trader-lenders," Byju's said.