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Byju's lenders initiate bankruptcy proceedings in the US over a $1.2 billion term loan

Bengaluru: A majority of edtech company Byju’s lenders have filed petitions in the US to initiate involuntary Chapter 11 bankruptcy proceedings against three US-based guarantors for a $1.2 billion term loan.

 

The petitions have been filed against Byju’s reading platform Epic! Creations Inc., Neuron Fuel Inc., and Tangible Play Inc., the lenders said in a statement on Wednesday. Glas Trust Co. LLC, a US-based non-banking loan agency representing more than 85% of the lenders, has been appointed as an administrative agent for the loan.

 

“Since Byju’s began to default on its term loan obligations shortly after we provided Byju’s Alpha (the US subsidiary of Byju’s) with financing in 2021, we have made every effort possible to work productively and collaboratively to help Byju’s cure its multiple defaults," the lenders said."

However, it is clear that Byju’s management has no intention or ability to honor its obligations. Indeed, Byju’s founders—Byju Raveendran, Riju Ravindran, and Divya Gokulnath—who also serve as the three directors of the overall enterprise, unlawfully diverted $533 million in loan proceeds, the whereabouts of which are still unknown," the lenders stated.

“From an impact standpoint for Byju’s, this move is likely to exacerbate the financial turmoil the company is experiencing in multiple jurisdictions," said Saumya Brajmohan, partner at Solomon & Co law firm.

“From a compliance and lender standpoint, the move is significant as it deters organizations from siphoning money from lenders and forces them to conduct regular financial audits and present all relevant information regarding the company’s financial position to investors and lenders," Brajmohan added.

Also read: Byju’s woes worsen as Rajnish Kumar and Mohandas Pai step down from the advisory panel.

In February, a day after Byju’s key investors moved to oust co-founder and CEO Byju Raveendran, Alpha Inc. filed for bankruptcy after defaulting on a $1.2 billion debt. Byju’s US subsidiary initiated Chapter 11 proceedings in a Delaware court, stating that it lacked the funds to defend itself against litigation. According to court documents, Alpha listed its assets in the range of $500 million to $1 billion, with an estimated 100 to 199 creditors. A spokesperson for Byju’s did not immediately respond to queries.

sale to pay its term loan B lenders. Byju’s had acquired these companies during the funding rush of 2021 to build its empire that came to be valued at $22 billion. 

The company’s valuation has since significantly eroded, with Byju’s itself diluting its estimated worth for its controversial $200-million rights issue.

Byju’s had raised $1.2 billion through a term loan B from overseas investors in November 2021, when interest rates were low. However, relations between Byju’s and its lenders have soured since, and interest rates have surged. The matter came to a head in June last year, when the company skipped an interest payment and took its lenders to court to prevent an acceleration of the repayment.

Also read | Byju’s: Battle for control

As a result of Byju’s failed leadership and mismanagement, significant harm has been done to its businesses and the value of its assets. Shareholders and lenders have seen their investments deteriorate, employees and vendors have faced payment delays, and customers have suffered," the lenders stated on Wednesday.

They added that steps were being taken to preserve the value of these assets. “We remain committed to their success and are ready to infuse the necessary capital to reorganize the businesses. Under court supervision, the lenders hope that Epic, Neuron Fuel, and Tangible Play will benefit from much-needed oversight while a plan is developed to maximize the value of these assets for all stakeholders."

yju's Fall from Grace

Byju’s, once India's highest-valued startup, has been struggling to repay creditors and employees as students have returned to in-person learning post-pandemic. Its debt has surged to over $200 million in India and $200-250 million in the US, including $40 million quarterly payments to bondholders. The company has defaulted on these payments since June 2023 and is negotiating the repayment of a $1.2 billion term loan B.

Also read | kalseaajtak :The mountain of legal cases that could bury Byju’s

Byju’s is also embroiled in legal disputes with investors such as Prosus Ventures and Peak XV over governance, financial mismanagement, and compliance issues. These investors are pushing for changes in leadership and a new board of directors. Once valued at over $22 billion, Byju’s has been unable to access the $200 million raised from a recent rights issue due to a court order, while debts to employees, lenders, and vendors have increased. Numerous employees, including top executives, have left the company in recent months. In April, Byju’s India chief executive Arjun Mohan resigned just seven months into his tenure.