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Byju's lenders start bankruptcy proceedings against its US assets

Byju's founders unlawfully diverted $533 million in loan proceeds, the whereabouts of which are still unknown, alleged the lenders

Bs_logoByju Raveendran, Byju's founder
Byju Raveendran, Byju’s founder
Peerzada Abrar Bengaluru
5 min read Last Updated : Jun 05 2024 | 7:48 PM IST
A group of US-based lenders has petitioned to place several assets of the education technology (edtech) company Byju’s into bankruptcy, saying the company is not paying its debts as they come due.

The ad hoc group of term loan lenders (lenders) of Byju’s Alpha Inc (borrower) $1.4 billion term loans said that certain holders of the term loans and GLAS Trust Company LLC (as administrative agent and collateral agent of term loans) have filed petitions pursuant to Chapter 11 of the US Bankruptcy Code.

This was done to initiate involuntary Chapter 11 proceedings against Epic, Neuron Fuel (DBA Tynker), and Tangible Play (DBA Osmo), the three US-based guarantors of term loans (collectively, the US guarantors), in the US Bankruptcy Court for the District of Delaware (the Court).

The lenders alleged that Byju’s began to default on its term loan obligations shortly after it provided the company’s US subsidiary Byju’s Alpha with financing in 2021.

Lenders said they have made every effort possible to work productively and collaboratively to help Byju’s cure its multiple defaults.

“However, it is clear that Byju’s management has no intention or ability to honour its obligations under term loans,” alleged the lenders. “Indeed, Byju’s founders, who also serve as the three directors of the overall enterprise — Byju Raveendran, Riju Ravindran, and Divya Gokulnath — unlawfully diverted $533 million in loan proceeds, the whereabouts of which are still unknown.”

As a result of Byju’s failed leadership and mismanagement, the lenders alleged that significant harm had been done to Byju’s businesses and the value of the company’s assets. They said that shareholders and lenders to the company have seen the value of their investments decline, employees and vendors have not been paid in a timely manner, and customers have suffered.

“Among other important goals, we have taken this action to protect and preserve the value of Epic, Neuron Fuel, and Tangible Play. We remain committed to their success and stand ready to infuse the capital necessary to reorganise the businesses,” said the lenders.

“Under the supervision of the Court, the lenders hope that Epic, Neuron Fuel, and Tangible Play will benefit from much-needed oversight while a plan is developed to maximise the value of these assets for the benefit of all stakeholders.”

Term Loan B (TLB) is a term loan by institutional investors with the primary goal of maximising their long-term returns.

To assist in the lenders’ efforts, the lenders invite former employees, students, and vendors of Epic, Neuron Fuel, and Tangible Play to anonymously share their experiences, including whether they are owed any outstanding debt, in dealing with these businesses and their leadership by visiting www.ByjusBankruptcy.com.

An email query to the company remained unanswered until the time of going to press.

US assets sale

Cash-strapped Byju’s had decided to put its key assets, including Epic, Tangible Play (Osmo), and Great Learning, on the block to generate at least $1 billion in cash, aiming to meet the edtech firm’s various commitments, including repaying the entire $1.2 billion TLB, according to sources.

It was in talks with three to four strategic buyers, including Joffre Capital and language learning platform Duolingo, to sell one of its key assets, the US-based digital reading platform Epic, for $400-450 million.

According to sources, these deals have faced roadblocks as Byju’s and its investors locked horns at the National Company Law Tribunal over the company’s rights issue of $200 million in a petition alleging oppression and mismanagement.

The group of four investors — Prosus, General Atlantic, Sofina, and Peak XV (formerly Sequoia) — had sought a stay on the rights issue at less than 99 per cent enterprise valuation compared to Byju’s peak valuation of $22 billion. They have the support of other shareholders, including Tiger Global and Owl Ventures, according to sources.

Acquisition spree

In 2021, Byju’s was on an acquisition spree to grow rapidly in India and globally as the pandemic accelerated the adoption of online education.

In July 2021, Byju’s acquired the US-based digital reading platform Epic for $500 million, aiming to expand its US footprint by accessing 2 million teachers and 50 million children in Epic’s global user base.

The same month, the edtech firm bought Singapore-headquartered Great Learning, a global player in the professional and higher education segment, in a transaction valued at $600 million, comprising cash, stock, and earnout.

In January 2019, Byju’s closed Osmo’s acquisition, its first overseas, for $120 million in a stock-and-cash deal.

Byju’s losses widened to Rs 8,245.2 crore in 2021-22 from Rs 4,564.38 crore in 2020-21 as subsidiaries WhiteHat Jr and Osmo underperformed, according to regulatory documents.

WhiteHat Jr and Tangible Play (Osmo) contributed to 45 per cent of the company’s losses.


 
Timeline of allegations by lenders

 

2021
Byju’s Alpha, Inc is established as a US subsidiary to receive term loan proceeds

 

2022
March 16: Byju’s fails to provide required unaudited quarterly financial information

 

2022-2023
Byju’s fails to provide audited financial statements, delays disclosures by 18 months, and misses a required subsidiary guarantee

 

2023
March 3, 2023: Lenders accelerate term loans and take control of Byju’s Alpha, replacing director Riju Raveendran with Timothy R Pohl

 

March-October: Lenders attempt to collaborate with Byju’s on a resolution, but Byju’s continues to default

 

October: Kroll is appointed receiver for Great Learning, a Byju’s subsidiary

 

November: Delaware Chancery Court recognizes Byju’s loan default

 

2024
January: Lenders initiate insolvency proceedings against Think & Learn (Byju’s) in India

 

February: Byju’s Alpha files for Chapter 11 bankruptcy in the US to investigate $533 million in missing loan proceeds

 

March: Court holds Camshaft Capital Fund, LP and founder William Morton in contempt for failing to provide information on the $533 million. Court confirms likely fraudulent conveyance of $533 million and finds Byju Raveendran and Divya Gokulnath complicit with Riju Raveendran

 

May: Court holds Riju Raveendran in contempt for not disclosing the location of the $533 million

Topics :Byju RaveendranByju'sEdTech

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