Byju’s Loan Default Lenders Take Control of Unit

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Image Source: The Times of India

Byju’s, a once-prominent Indian ed-tech startup, faces a significant setback as lenders, including Redwood Investments LLC and Silver Point Capital LP, seize control of a unit due to a $1.2 billion loan default.

Legal Ruling

Delaware Chancery Court Judge Morgan Zurn concluded that lenders, acting within contractual rights, properly cited the loan default to take over Byju’s Alpha, a special-purpose company. The court rejected Byju’s complaint that Timothy Pohl, appointed by lenders, lacked proper authorization.

Lenders’ Actions

Amid Byju’s financial distress, exacerbated by the waning online learning boom post-pandemic, lenders pressed for loan repayment. Byju’s had been working on asset sales to address the issue, but government investigations complicated matters, leading some investors to devalue their stakes.

Byju’s Alpha Status

Byju’s Alpha, designed as a holding company, aimed to protect lenders’ rights without seeking control of the entire ed-tech giant. The lenders asserted their control over pledged Byju’s Alpha shares after default-triggered clauses were invoked.

Response from Byju’s

Byju’s, based in Bengaluru, has yet to respond to the recent developments. The company previously dismissed lenders’ default arguments as baseless.

Court Decision and Leadership Change

Judge Zurn’s ruling allowed Pohl to assume control as the sole director of Byju’s Alpha after defaults occurred. Pohl, appointed by the lenders, removed existing officers and assumed the role of CEO.

Trustee’s Role

Glas Trust Co., acting as trustee for lenders, filed the lawsuit over the loan default. Pohl’s appointment as the overseer for Byju’s Alpha was a strategic move by the creditors to protect their interests.

Fees Controversy

Byju’s complaint about excessive fees earned by Pohl, amounting to at least $375,000, was rejected by the court. Zurn clarified that the monthly pay of $75,000 was authorized to maintain the status quo during the legal proceedings.

Winding it up

As Byju’s grapples with financial challenges and legal battles, the lenders’ assertion of control over a key unit marks a critical juncture in the company’s trajectory. The court’s decision underscores the complex dynamics of financial distress and creditor actions in the fast-evolving ed-tech landscape.