The legal battle between Byju’s and lenders in the US on the edtech firm’s $1.2-billion term loan B (TLB), along with the company skipping an interest payment of $40 million on the loan, has made the other investor Davidson Kempner Capital Management, “extremely concerned”, according to the people familiar with the matter.
IMAGE: Raveendran’s big dreams led to Byju’s, one of India’s most successful start-ups. Photograph: Kind courtesy byjuslearningapp/Facebook.com
They said Byju’s has closed a Rs 2,000-crore ($250 million) round from the US-based investment firm and it may stop or consider slowing down the flow of various tranches of that capital to the company.
It may also decide not to provide any new funding or participate in any such round in the future, the sources said.
“They are extremely concerned,” said the person familiar with the matter.
“They have disbursed a part of the amount and there could be no further pay-outs.”
According to sources, disbursement of the capital is still within the control of David Kempner.
“If there are certain defaults, the lender can choose not to disburse (any further amount),” said a source.
Kempner declined to comment to a query sent on Friday.
Byju’s has filed a suit against US-based investment management firm Redwood, challenging the acceleration of a $1.2-billion TLB facility and to disqualify the lender for its “predatory tactics”, the edtech major said recently.
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
According to the sources, Byju’s had a restricted list of lenders, which contained hedge funds that for living purchase distressed debt at discounted prices, expecting to profit if the company recovers, or, if it files for bankruptcy protection.
“They are vulture funds,” said a person.
“What Byju’s is arguing is that Redwood was on that restricted list and therefore the initial lenders could not have sold the loan on the secondary market to Redwood,” said a person.
That is why Byju’s is suing Redwood in the New York Supreme Court.
Because after Redwood bought the loan, they called it default and exercised the right to replace the Board.
“Now obviously this is going to have a serious impact on the fundraising of the company,” said the person.
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.
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.
The legal battle between Byju’s and lenders in the US on the edtech firm’s $1.2-billion term loan B (TLB) is expected to adversely affect its fundraising, including debt, loan, and equity, according to industry sources and experts.
They said this might delay the initial public offering (IPO) for its tutoring service subsidiary Aakash Educational Services (AESL).
AESL is eyeing an IPO by next year.
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