Byju's and lenders postpone legal battle, aim for out-of-court settlement

The parties are working on reaching a forbearance agreement, and discussions are still ongoing


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BS Reporter Bengaluru

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Edtech giant Byju's and its term loan B lenders have decided to postpone an ongoing disagreement in the US courts until October 06. This extension aims to provide more time to achieve an out-of-court resolution, according to a report by Mint.

The parties are working on reaching a forbearance agreement, and discussions are still ongoing, the court said in its August 24 order, according to the Mint report.

The issue goes back to June when Byju's filed a suit against US-based investment management firm Redwood, challenging the acceleration of a $1.2 billion term loan B (TLB) facility and to disqualify the lender for its "predatory tactics". Byju's also skipped an interest payment of about $40 million on the loan, thus becoming the only Indian start-up to have defaulted on a US-dollar loan.

Byju's, which filed the suit in the New York Supreme Court, said that contrary to the conditions of the loan facility, Redwood purchased a significant portion of the loan while primarily trading in distressed debt.

Given that legal proceedings were in both Delaware and New York, the entire TLB is disputed, the company said in a statement. The edtech firm said Byju's could not be expected to and has elected not to make any further payment to the TLB lenders, including any interest until the court decides the dispute.

TLB is a term loan by institutional investors with the prime goal of maximising their long-term returns. In TLB, borrowers are not required to pay the principal upfront; they can pay a large sum at the end of the loan period.

Both parties are negotiating new terms, including upfront payments of $200 million and 12-13 per cent interest, with restricted tenure of 3-5 years, according to the sources quoted by Mint.

In June, a group of ad hoc lenders, who collectively own more than 85 per cent of Byju's term loans amounting to $1.2 billion, said the recent lawsuit filed by the edtech firm in the Supreme Court of the State of New York County lacks merit.

They said Byju's meritless lawsuit against its term loan lenders is simply an effort to avoid complying with its obligations, including making contractually required payments. They said the lender group, comprising 21 global institutional investors, sought to work constructively with the company over the past nine months to cure its "numerous defaults" and would continue to do so in good faith.

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"However, in the event Byju's intentionally remains in default, the lender group reserves all rights available to it to enforce the credit agreement," they stated.

In May, the Bengaluru-headquartered company's US entity Byju's Alpha, was sued in Delaware by an agent of lenders to whom the company owes $1.2 billion. The lawsuit was filed by GLAS Trust Company and investor Timothy R Pohl against Byju's Alpha, Tangible Play (Osmo), and Riju Raveendran. The two companies being sued are units of Think and Learn Private, an edtech firm founded by Byju Raveendran.

The lenders reportedly accused the company's entity, which has no employees, of hiding $500 million as part of a battle between the creditors and the edtech firm. The allegation was made during a court hearing last month in Delaware, where Alpha faces a lawsuit over who should control the firm. The lenders claimed that because of a default earlier this year, they have the right to put their representative, Timothy R Pohl, in charge. Byju's Alpha borrowed $1.2 billion, and the lenders received significant pledges of collateral to protect their loans.

First Published: Sep 01 2023 | 12:19 PM IST

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