Byju’s Surrenders Unit to Lenders Following $1.2 Billion Loan Default

In a courtroom drama that underscores the challenges facing once-thriving tech startups, lenders to Byju’s, a prominent Indian ed-tech firm, have successfully asserted their rights in a Delaware court. The lenders, including Redwood Investments LLC and Silver Point Capital LP, properly cited a default on a substantial $1.2 billion loan, leading to the takeover of Byju’s Alpha, a special-purpose entity formed for financing.

Delaware Chancery Court Judge Morgan Zurn ruled that the lenders, acting within their contractual rights, were justified in replacing a board member of Byju’s Alpha with their nominee. Byju’s had challenged the authority of Timothy Pohl, appointed by lenders to oversee the special-purpose entity, but Judge Zurn rejected the complaint, stating that Pohl’s appointment was a result of the defaults.

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The $1.2 billion loan, under scrutiny amid Byju’s financial distress following the decline of the pandemic-era online learning boom, has prompted lenders to aggressively seek repayment. Byju’s, in efforts to address the loan issue, faced additional challenges when government investigators searched its offices earlier this year, leading to concerns among investors and write-downs in the stakes of the ed-tech giant.

Byju’s Alpha, originally intended as a holding company to safeguard lenders’ rights, became a focal point in the legal battle. Lenders clarified that their intention was not to take over the entire ed-tech company but to protect their interests in the case.

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Byju’s, based in Bengaluru, has not immediately responded to requests for comments. The company had previously dismissed the lenders’ default claims as baseless.

A spokesperson for the lender group expressed satisfaction with the court’s decision, emphasizing Byju’s repeated defaults on loan obligations. The lenders retain all rights available to them, indicating potential further actions in the complex financial dispute.

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The loan terms granted lenders the authority to take control of pledged Byju’s Alpha shares in the event of a default. The triggering of this right occurred when a company unit failed to secure the Indian government’s backing as a loan guarantor, leading to a notice of default filed by lenders in March.

Timothy Pohl, now the sole director of Byju’s Alpha, assumed the role of CEO after removing all company officers. Byju’s contested Pohl’s compensation, alleging excessive fees. However, Judge Zurn upheld Pohl’s $75,000-per-month pay, authorized under a “status-quo” order entered to protect Byju’s Alpha during the legal proceedings. The intricate saga highlights the intricate intersections of finance, legal battles, and corporate governance in the rapidly evolving landscape of ed-tech.