Byju’s vs Redwood: The Battle Over a $1.2 Billion Loan

 Byju’s, India’s most valuable startup and a leading online education platform, has filed a suit in the New York Supreme Court against investment management firm Redwood, challenging the acceleration of a $1.2 billion term loan B and seeking Redwood’s disqualification as a lender.

The term loan B was originally taken by Byju’s in 2020 to fund its acquisitions of US-based companies WhiteHat Jr and Epic. The loan was the largest unrated loan by a startup ever and had a maturity date of 2025.

However, in March 2021, a group of lenders led by Redwood allegedly accelerated the term loan B due to certain non-monetary and technical defaults by Byju’s, such as failing to provide timely financial statements and violating certain covenants. The lenders also undertook unwarranted enforcement measures, such as seizing control of Byju’s US unit Byju’s Alpha and appointing its management.

Byju’s has denied any defaults and claimed that Redwood purchased a significant portion of the loan while primarily trading in distressed debt, which was contrary to the conditions of the term loan facility. Byju’s also issued a notice to Redwood entities disqualifying them as lenders with critical rights under the term loan norms once it takes effect.

“We had to take these steps following a series of predatory tactics by the lenders, led by Redwood,” Byju’s said in a statement.

Byju’s has also chosen not to make any further payments to the term B loan providers, including any interest that may have accrued, until the dispute is resolved by the court12. The company had previously planned to make a quarterly interest payment of about $40 million on the loan in June 2021.

The lawsuit is the latest twist in the saga of Byju’s financial troubles, which have been exacerbated by the slowdown of the pandemic-era boom in online tutoring. The company, which was valued at $16.5 billion in April 2021, has been trying to strike a deal with creditors to restructure the loan, but the negotiations have failed due to the lenders’ demands for an accelerated repayment and higher interest rates.

The outcome of the case could have significant implications for Byju’s future growth plans, as well as for the broader startup ecosystem in India, which has seen a surge of funding and valuations in recent years.