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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.
“Byju’s’ meritless lawsuit against its term loan lenders is simply an effort to avoid complying with its obligations, including making contractually required payments,” said the lenders in a statement. 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.
“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.
Houlihan Lokey serves as financial advisor to the term loan lender group and Kirkland & Elli, Cahill Gordon & Reindel, and Shearman & Sterling LLP are serving as legal advisors.
A Byju’s spokesperson declined to comment on the statement given by the lenders.
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Byju’s filed a suit against US-based investment management firm Redwood to challenge the acceleration of the $1.2-billion term loan B (TLB) facility, and disqualify the lender for its “predatory tactics”. Byju’s also skipped an interest payment of about $40 million on the loan.
The edtech firm argued 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 are now on in both Delaware and New York, the entire TLB is disputed, the company said in a statement. TLB is a term loan by institutional investors with the prime goal of maximising their long-term returns.
The Bengaluru-headquartered company’s US entity Byju’s Alpha was recently 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 have 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 claim 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. “As a result of repeated and ongoing breaches of the credit agreement, GLAS, as Collateral Agent under the Loan Documents and at the direction of the required lenders, has exercised remedies, which resulted in 100 per cent of Byju’s Alpha’s equity being transferred ‘to its name’,” alleged the lenders in the petition filed in the Court of Chancery of the State of Delaware and reviewed by Business Standard. The document is dated May 23, 2023.
To distinguish between Byju Ravindran and his younger brother, defendant Riju Ravindran, this complaint refers to Byju Ravindran (Raveendran) as “Ravindran” and Riju Ravindran as “Defendant Riju Ravindran.”
It said the lenders were forced to exercise remedies following repeated—and conceded—events of default arising from Byju’s Alpha’s (and its guarantors’) breaches of multiple covenants within the credit agreement. “Along with their failure to make good on any of their repeated promises to address these events of default and the lenders’ concerns regarding their collateral,” said the lenders.
They alleged while originally attracted to the investment opportunity, the lenders’ relationship with Ravindran (who owns and controls, directly or indirectly, the loan parties) has been marred by the loan parties’ troubling disregard for their contractual obligations and a series of broken promises to remedy the breaches caused by their disregard. For example, they said over the past year, Think and Learn has repeatedly failed to, and continues to be unwilling to, provide the lenders with bargained-for consolidated financial data and required or otherwise promised guarantees and collateral.
They said among other events of default, Think and Learn still has not only failed to produce audited financial statements for its fiscal year ended March 31, 2022, which were originally due no later than September 27, 2022, but has also repeatedly failed to furnish complete, unaudited financial statements for multiple fiscal quarters.
“As a result, the lenders’ most recent audited, and thus verified, financial information on a billion-dollar-plus loan facility is more than two years outdated (that information was for the fiscal year ended March 31, 2021). The lenders do not even have the complete unaudited financial statements to which they are entitled,” according to the court document.
Byju’s filed its 2020-21 results in September 2022, after a nearly 18-month delay. The firm posted losses of Rs 4,588 crore in FY21, 19 times more than in the preceding year.
“These failures have caused Byju’s Alpha’s lenders significant and understandable concern,” according to the document. “The lenders have gone to significant lengths to avoid escalation.”
Beginning a year ago, in April 2022, the lenders agreed to, and executed, a series of amendments and limited waivers in an effort to protect their interests without unnecessary disputes.
The document said regrettably, despite these efforts, Ravindran, through Think and Learn and Byju’s Alpha, failed to make good on his obligations and, to the contrary, continued to ignore key provisions of the credit agreement. The lenders’ concerns mounted, and they continued to push for assurances with respect to their rights and collateral.
Finally, on January 6, 2023, Think and Learn, Byju’s Alpha, and the other loan parties signed a ‘forbearance agreement’ expressly reacknowledging that four distinct (and previously conceded) events of default had occurred and were continuing under the Credit Agreement, for the failure to provide required audited and unaudited financial statements and to procure a guarantee from another one of Ravindran’s companies. Ravindran further acknowledged that, as a result of these conceded Events of Default, the Lenders had the right to accelerate the entirety of the remaining term loan. The lenders alleged that the Loan Parties, each controlled by Ravindran, have simply proceeded to violate the terms of the Forbearance Agreement.
With the lenders pushing for greater financial transparency and concerned that Byju’s Alpha could transfer cash in its U.S. bank accounts overseas, the lenders obtained the right to receive, as a condition of forbearance. Think and Learn agreed to provide, “balances of cash, cash equivalents and marketable securities, and transactions with respect to each material U.S. Bank Account on a weekly basis.” “This information was also not provided,” said the court document.
After the Forbearance Agreement expired on February 10, 2023, the lenders continued to seek a pathway to a negotiated resolution. But as in prior engagements with Ravindran, those efforts were one-sided and ultimately were exhausted without success and with only more concerns.
On Friday, March 3, 2023, the lenders began exercising remedies. Pursuant to the Credit Agreement, the lenders directed GLAS, as Administrative Agent and Collateral Agent, to issue a formal Notice of Events of Default and Acceleration. This caused over $1.255 billion to become immediately due and payable (representing the entire principal amount of the term loans outstanding plus then-accrued and outstanding interest (at the applicable default interest rate), certain premiums, and fees).
That entire principal amount remains outstanding, less one scheduled amortization payment made by the Company on March 31, 2023. This was received by GLAS. However it did not in any manner affect the prior acceleration of the term loan.
On March 3, 2023, the Required Lenders instructed GLAS to send notices to approximately 300 financial institutions providing notice of the remedies exercised. The lenders alleged that some of them responded and represented to GLAS that Byju’s Alpha did not have an account with them. Moreover, in the past two months, Byju’s Alpha has not provided to GLAS or Pohl access to its books and records nor its bank accounts, which would permit them and the lenders to finally receive full transparency.
“Ravindran’s representatives threatened to direct Byju’s Alpha—an entity that they no longer controlled—to formally classify the Lenders as ‘Disqualified Lenders’ under the Credit Agreement,” said the lenders.
They said that in recent weeks negotiations have stalled and Ravindran’s representatives have begun disengaging.
They said most recently, on April 29, 2023, the Indian Directorate of Enforcement (India’s federal financial probe agency) announced that it had raided Ravindran’s house and two other locations, as part of an existing probe into alleged violations of foreign exchange rules by Ravindran’s companies, including Think and Learn. The Directorate of Enforcement reported that it had found “various incriminating documents and digital data was seized.” “Ravindran’s companies are now facing the potential for the Indian government to attach or seize their assets,” alleged the lenders.
They said within months of executing the Credit Agreement, Think and Learn failed to comply with the Audit Covenant, Statements Covenant, and Whitehat (a company owned by Byju’s) Guarantor Covenant.
“Each of these breaches resulted in separate, independent Events of Default, and, as a whole, the breaches have materially frustrated the Lenders’ ability to monitor the business and secure and protect their collateral,” said the lenders.
