Byju’s lenders start bankruptcy proceedings against its US assets

The majority of Byju’s lenders have filed petitions in a Delaware court in the United States to commence involuntary Chapter 11 bankruptcy proceedings against the three US-based guarantors for a $1.2 billion term loan. The petitions are directed towards Epic! Creations Inc., Neuron Fuel Inc., and Tangible Play Inc., the reading platforms used by Byju. The loan’s administrative agent is Glass Trust Co. LLC, a non-banking loan agency with operations in the US that represents over 85% of the lenders.

Lenders claim that immediately after they financed Byju’s Alpha, the company’s US subsidiary, in 2021, Byju’s started to miss payments on its term loan obligations. They did everything within their power to collaborate and work together to help Byju’s heal its several defaults, but it’s evident that Byju’s administration lacks the will or capacity to fulfill its responsibilities. They further emphasized that the three main founders of Byju—Byju Raveendran, Riju Ravindran, and Divya Gokulnath—illegally shipped $533 million in loan profits, and what became of that remains a mystery.

According to Saumya Brajmohan, a partner at the Solomon & Co law firm, this action will worsen the financial difficulties the company is already facing across several jurisdictions. The action is important from a compliance and lender perspective since it prevents businesses from embezzling money from lenders, compels businesses to do regular financial audits, and ensures that investors and lenders are provided with all pertinent information about the company’s financial standing.

Alpha Inc. defaulted on its $1.2 billion loan and filed for bankruptcy in February. It declared that it had assets between $500 million and $1 billion and that it did not have sufficient resources to defend itself in court. In September, the company decided to pay off its term loan B lenders by putting two of its companies—the higher education platform Great Learning and Epic—up for sale. Byju’s bought these businesses during the 2021 financing frenzy to establish its empire, which ultimately garnered a valuation of $22 billion. Nevertheless, Byju’s failed to pay the interest due in June 2023 and sued its lenders to stop the payback from being expedited.

The company’s revenue and asset value have suffered substantial losses as a result of the poor management choices it made. Customers have suffered, staff and vendors were left without timely payment, and shareholders and lenders have seen the value of their investments decline. Byju was once valued at more than $22 billion, but due to a court order, it has not been able to access the $200 million it obtained from a recent rights issue, even though its debts to lenders, vendors, and employees have soared. In addition, the edtech major is involved in legal disputes regarding financial mismanagement and governance with other investors, such as Prosus Ventures and Peak XV.