Byju's default could spark lender action

Edtech unicorn Byju’s skipped paying $40 million interest on a $1.2 billion loan that was due on 5 June, triggering a default that could affect several group entities and prompt lenders to invoke guarantees and initiate insolvency action.

- Ranjani Raghavan

In a statement on Tuesday, the country’s most-valued startup said it would not pay any further interest on the Term Loan B (TLB) until a US court decided on its petition against some of its lenders, including Redwood Capital Management Llc.

Byju’s said its agreement with lenders allows it to disqualify distressed debt investors such as Redwood and also disqualify competitors from buying up the TLB debt.

“Byju’s has taken the decisive action to file a complaint in the New York Supreme Court to challenge acceleration of the $1.2 billion TLB and to disqualify Redwood Capital Management, who, contrary to the terms of TLB, purchased a significant portion of the loan while primarily trading in distressed debt," the statement said.

TLBs are senior secured debt with higher interest rates. They are typically used by companies to fund acquisitions and are often structured with covenants and terms based on the borrower’s creditworthiness.

The company attributed its action to a series of “predatory tactics" by lenders led by Redwood. Byju’s said these included threatening to seize the management of its US unit Byju’s Alpha Inc. and demanding it make early repayments.

“Given that legal proceedings are now on foot in both Delaware and New York, it is clear that the entire TLB is disputed. As such, Byju’s cannot be expected to and has elected not to make any further payment to the TLB lenders, including any interest, until the dispute is decided by the court," the company said.