Indian edtech giant Byju’s has lodged a complaint in the New York Supreme Court challenging the acceleration of its $1.2 billion term loan B. Byju’s has criticized the lenders’ demands for the prepayment of the entire loan amount, describing them as “high-handed.” The company has also sought to disqualify Redwood, an investment management firm, whom it accuses of engaging in predatory tactics.
Byju’s, headquartered in Bengaluru, opted for the term loan B in late 2021 as a means of securing financing for its rapid growth without diluting existing shareholders’ equity stake in the firm. However, the startup claims that Redwood, primarily engaged in trading distressed debt, purchased a significant portion of the loan portfolio with the intention of making substantial gains. Byju’s contends that Redwood’s actions are opportunistic in nature.
In response to the lenders’ alleged unlawful acceleration of the loan term based on purported non-monetary and technical defaults, Byju’s has declared its refusal to make any payments or interest to the term loan B lenders until the dispute is resolved. Byju’s accuses the lenders of engaging in “unconscionable” actions, including seizing control of Byju’s Alpha, a subsidiary of the company, and appointing their own management. The term loan B lenders, through their agent GLAS Trust Company, have also initiated litigation in Delaware in an attempt to legitimize these actions, according to Byju’s.
Byju’s claims that the lenders’ attempt to deprive the company of its contractual right to disqualify lenders engaged primarily in opportunistic trades was unsuccessful in the Delaware court. The court ruled that the lenders had not demonstrated irreparable harm or the balance of harms required to support the restraint of Byju’s contractual right. Faced with these circumstances, Byju’s believes it has no choice but to pursue legal action.
The company has issued a notice to the Redwood entities, seeking their disqualification. If successful, this disqualification would prevent Redwood from exercising critical rights under the term loan B agreement. Byju’s highlights that it has shown significant restraint by refraining from utilizing the disqualification clause thus far, instead making efforts for several months to achieve an amicable resolution with the assertive trader-lender.
Byju’s move to challenge the acceleration of the term loan B and seek disqualification of Redwood represents a significant development in the ongoing dispute between the edtech giant and its lenders. The outcome of this legal battle will likely have far-reaching implications for both parties involved. Byju’s, as India’s most valuable startup, has established a formidable presence in the edtech sector, attracting substantial investment and garnering attention on the global stage. The resolution of this dispute will not only impact the company’s financial standing but also serve as a precedent for similar cases within the industry.
It remains to be seen how the New York Supreme Court will rule on Byju’s complaint and whether the disqualification of Redwood will be granted. As the legal proceedings unfold, the implications for the wider edtech industry will be closely monitored, as investors, lenders, and other stakeholders gauge the potential impact on the sector’s dynamics and the future financing options available to edtech companies worldwide.
