Byju’s lenders accused of using bogus loan-default claims

The distressed-debt lenders are 'playing hardball' to create leverage in negotiations to restructure the loan and causing problems for Byju’s executives, a lawyer said.

By Jef Feeley and Reshmi Basu

Lenders to one of India’s hottest tech startups, Byju’s, created bogus default claims tied to a $1.2 billion loan as part of a scheme to gain control of the education-technology provider, the firm’s lawyer told a judge.

The distressed-debt lenders are “playing hardball” to create leverage in negotiations to restructure the loan and causing problems for Byju’s executives, Sheron Korpus, a lawyer for the Bengaluru-base company, said at a hearing in state-court in Delaware Friday.

Also Read: Byju’s misses target to amend $1.2 billion loan terms

Lenders, including US investment firms Redwood Investments LLC and Silver Point Capital LP, are “making extortionate demands” of Byju’s, putting the ed-tech firm “under a lot of pressure,” Korpus told Delaware Chancery Court Judge Morgan Zurn. Byju’s wants the judge to rebuff the lenders’ default claims. Zurn said she’d rule later on the case.

An attorney for the lenders Friday waved away Korpus’s claims, noting Byju’s had repeatedly violated the loan agreement’s terms and acknowledged the defaults. Filing suit over the loans “is not predatory behavior,” Brock Czeschin, the creditors’ lawyer, told Zurn.

The dispute is another complication for the high-flying startup founded by Byju Raveendran in 2011. Byju’s had already been working to appease creditors trying to restructure the $1.2 billion loan when government investigators searched company offices in April. The fight also has prompted some investors to write down their stakes in the firm.

Also Friday, Aakash Educational Services — Byju’s tutoring business unit — agreed to add two independent directors to its board at the behest of creditor Davidson Kempner Capital Management LP, Bloomberg News reported. Davidson Kempner, which manages more than $38 billion, forced the changes in Aaksah’s board as the borrower was in breach of some covenants on a $250 million loan, according to people familiar with the deal.

Also Read: BYJU'S sends notice to Aakash founders demanding share transfer

Byju’s officials are in ongoing talks with lenders to amend the loan’s terms and Korpus said the firm “still wants to make a deal” to resolve the dispute. But lenders are trying to use the bogus default claims to wrongfully “seize control” of Byju’s from its founder, Korpus added.

The ed-tech company failed to sign off on an amendment by an Aug. 3 deadline that would have ended legal action in the US. For months now, Byju’s and lenders have been negotiating over the loan, after the company breached debt covenants. A steering committee of creditors — who together own more than 85% of the loan — and Byju’s had agreed to seek a compromise.

The lawsuit over the loan was filed by Glas Trust Co., which serves as trustee for the lenders. Ex-lawyer Timothy Pohl has been appointed to oversee Byju’s on behalf of the creditors. Korpus said Pohl had been paid $375,000 in his role as Byju’s director-designee for the lenders. He’s slated to be paid $75,000 per month while he oversees lenders’ Byju’s interests, according to court filings.

Czeschin, a Wilmington, Delaware-based lawyer for the lenders, didn’t immediately return a call for comment Friday on Pohl’s compensation for serving as the creditors’ Byju’s overseer. A number for Pohl wasn’t immediately available.

The case is Glas Trust Company v Riju Ravindran, 2023-0488, Delaware Chancery Court (Wilmington).