Byju's lenders win fight over $1.2 billion loan default, to take control over Byju's U.S subsidiary Alpha

Byju's Crisis: A Delaware court has delivered order in favour of ed-tech company Byju's lenders. In the $1.2 billion loan default case, the court observed that the US based lenders would assume control over Alpha Inc, a non-operative US subsidiary established by the edtech start-up to receive the Term Loan B.

Byju's Legal Battle

Delaware Chancery Court Judge Morgan Zurn ruled that the lenders – which include Redwood Investments LLC and Silver Point Capital LP – were within their contractual rights to replace a relative of company founder Byju Raveendran on the board of Byju’s Alpha, a special-purpose company formed for financing purposes, with their nominee.

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In a 41 page ruling, the Judge rejected Byju's complaint of Timothy Pohl being tapped by lenders to oversee the special-purpose entity and hence was improperly authorized to take the reins. The judgement ensured Pohl was “effectively seated” as the sole director of Byju’s Alpha because of the defaults.

“We are pleased the Delaware Chancery Court agrees that Byju’s has repeatedly defaulted on its loan obligations,” a spokesperson for the lender group said in a statement. “The lenders reserve all rights available to them.”

As per the lender's lawyer, Byju's Alpha  was intended to serve as a holding company to protect their rights in the case and that the lenders were not seeking to take over the entire ed-tech company.

However, the Judgement was delivered based on the loan terms. The terms allowed lenders to take control of pledged Bjyu’s Alpha shares if a default triggered that right.

Term Loan B

Byju's during its peak of growth raised the term loan in 2021. . Byju’s spent close to $3 billion across 13 deals between 2020-21, and the TLB was raised primarily to bankroll acquisitions. However, after the pandemic, lenders have been pushing hard for the repayment of the $1.2 billion loan amid the company’s mounting distress. This fight has also prompted some investors to write down their stakes in one of the world’s largest ed-tech companies. 

The lenders then filed a notice of default in March after Byju's failed to get the Indian government’s backing as a loan guarantor.