Distressed-Debt Lenders Employ Tough Tactics, Posing Challenges for Byju’s Executives
Lenders to Byju’s, one of India’s biggest internet businesses, have been accused of inventing fake default claims on a $1.2 billion loan. According to the corporation’s counsel during a court procedure, this claimed plot was designed with the intent of seizing control of the education technology company.
Lenders specializing in distressed debt are using aggressive approaches to obtain an advantage in conversations about loan restructuring.
As Sheron Korpus, the company’s attorney, pointed out during a hearing in a Delaware state court on Friday, this method is causing issues for the executives at Byju’s, which is based in Bengaluru.
Lenders, including Redwood Investments LLC and Silver Point Capital LP in the United States, are making exorbitant and unreasonable demands on Byju’s, causing substantial stress on the ed-tech firm. Sheron Korpus relayed this information to Delaware Chancery Court Judge Morgan Zurn. Byju’s is seeking a court order to invalidate the lenders’ claims of default. Judge Zurn noted that she will make her judgement on the case at a later date.
During the hearings, an attorney for the lenders refused Korpus’s claims, pointing out that Byju’s had consistently violated the conditions of the loan arrangement and even admitted to these instances of default. The lawyer representing the creditors, Brock Czeschin, highlighted that pursuing legal action over the loans cannot be considered predatory behavior. He expressed this viewpoint to Judge Zurn.
This lawsuit adds another degree of complication to the ambitious firm founded in 2011 by Byju Raveendran. When government officials conducted searches at Byju’s headquarters in April, the company was already in the process of attempting to satisfy creditors wanting to restructure the $1.2 billion debt. Furthermore, the conflict has caused some investors to downgrade their stakes in the company.
On the same Friday, Bloomberg News reported that Aakash Educational Services, a tutoring business of Byju’s, had agreed to appoint two independent directors to its board. Creditor Davidson Kempner Capital Management LP started this action.
Davidson Kempner, a firm with over $38 billion in assets, initiated the modifications to Aakash’s board composition. According to people connected with the issue, this action was taken because the borrower breached certain terms of a $250 million loan.
Byju’s representatives are currently in ongoing negotiations with the lenders to renegotiate the loan terms. Korpus added that the corporation is still dedicated to achieving a resolution to the matter. According to Korpus, the lenders are allegedly utilizing the false default claims to unjustly take control of Byju’s from its founder.
Byju’s, an education technology company, missed the August 3 deadline for approving an amendment that would have resolved the legal procedures in the United States. Byju’s and the lenders have been in discussions about the loan for several months, originating from the company’s breach of debt covenants. A steering group of creditors owning more than 85% of the debt had reached an agreement with Byju’s to negotiate a solution.
Glas Trust Co., serving as trustee for the lenders, launched the legal lawsuit involving the loan. Former lawyer Timothy Pohl has been appointed by the creditors to oversee Byju’s affairs. Pohl was compensated $375,000 as the director-designee representing the lenders. According to court filings, he will be paid $75,000 per month while overseeing the lenders’ interests in Byju’s.
Czeschin, the lender’s attorney located in Wilmington, Delaware, did not respond to a request for comment on Friday questioning Pohl’s remuneration for his job as the manager of the creditors’ interests in Byju’s. Pohl’s phone number was not readily available.
Glas Trust Company v Riju Ravindran, 2023-0488, is the case being tried in the Delaware Chancery Court in Wilmington.
