Lenders Allege BYJU’S Alpha Of Hiding $500 Mn, Edtech Denies Claims

Lenders have alleged that BYJU’S Alpha, a US-based non-operative entity of edtech decacorn BYJU’S, is hiding $500 Mn. The allegations have come as part of a lawsuit between creditors and the edtech giant.

The lenders alleged the same at a court hearing on Thursday (May 18) in Delaware, where BYJU’S Alpha is facing a lawsuit over who should control the company. The edtech’s lenders claimed that because of a default earlier this year, they have the right to put their representative, Timothy R Pohl. at the helm, Bloomberg reported.

However, BYJU’S has denied the claims to the lenders, calling them ‘bewildering’.

“The litigants have made bewildering claims that BYJU’S “moved” $500 million from BYJU’S Alpha, insinuating that these acts were somehow wrongful. This is entirely incorrect. We categorically deny these allegations,” said the edtech decacorn in a statement.

According to the edtech giant, the transfers were in full compliance and did not contravene any terms of the parties’ credit agreement and the agreed-upon rights and responsibilities. “In fact, even lenders have not alleged that the transfer was not permitted under the parties’ existing contractual arrangement,” the edtech added.

The two sides were in a standoff earlier this year as well. Brock Czeschin, one of Pohl’s lawyers, reportedly said during the hearing that a top manager at BYJU’S Alpha allegedly admitted to transferring half a billion dollars out of the company.

To be sure, the lenders are trying to take control of BYJU’S Alpha, which is just a holding company set up to receive the Term Loan B, as Czeschin said during the hearing, per the Bloomberg report. The lenders are not trying to take over BYJU’S itself, the edtech decacorn.

While the edtech’s lenders claimed that there was a default earlier this year, BYJU’S Alpha attorney Sheron Korpus reportedly said in an interview that the company was current on all debt payments and any defaults should be treated as technical breaches of the loan agreement.

BYJU’S added that it “has fulfilled all its contractual payment obligations as agreed upon in the Term Loan B signed in 2021 and has not missed a single payment thereunder.” The edtech further claimed in a statement that no monetary defaults have happened under the loan.

“The lenders’ allegations (which also we dispute) concern merely insignificant technical and non-monetary defaults,” the $22 Bn-valued edtech said.

To recap, BYJU’S took out a $1.2 Bn Term Loan B, the largest of its kind taken by an Indian startup, in November 2021. Over the past few months, as new debtors bought into the loan, the edtech is under pressure to pay off a significant portion of the debt early to give some debtors a profitable exit.

On the other hand, BYJU’S has been working to renegotiate the terms of the debt, including reportedly agreeing to pay a higher interest rate.

The issue of exit is what BYJU’S Alpha broached in court, per Bloomberg, as the holding company’s attorney claimed that lenders were distressed debt investors and were wrongly trying to make a profit on the company’s debt. “In the face of unrealistic and unacceptable terms being demanded by a collective of lenders engaged primarily in opportunistic trades, we remain steadfast in our pursuit of a fair and equitable resolution through good-faith negotiations,” BYJU’S further stated in a statement.

BYJU’S Alpha added that it will get a large capital infusion in two weeks, which it will use to pay down the $1.2 Bn it owes creditors.

The ‘large capital infusion’ refers to the $250 Mn debt the edtech giant has raised from the US-based alternative investment firm Davidson Kempner. Further, it remains in talks with sovereign funds and other investors to raise up to $1 Bn in equity funding.

Incidentally, Delaware Chancery Court Judge Morgan Zurn did not make any ruling about whether moving the money was appropriate. However, Zurn sided with the lenders, ordering BYJU’S Alpha managers not to make any substantive changes at the company.

Judge Zurn scheduled a trial to decide who controls BYJU’S Alpha for later this year.

Glas Trust Company filed the lawsuit against BYJU’S Alpha, its director Riju Ravindran and Tangible Play Inc, along with BYJU’s parent company Think and Learn Private Limited.

This forms another setback for the Byju Raveendran-led startup, which had been working to appease creditors for better terms. However, between recent ED visits at the company premises and increased pressure from investors, the edtech finds itself stuck between a rock and a hard place.

Update | May 19, 2023, 12:00 PM

The story has been updated to include BYJU’S comments on the matter.

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