Edtech giant Byju’s said it had taken decisive action, filing a lawsuit in New York Supreme Court challenging the expedited $1.2 billion Term Loan B (TLB) and disqualifying Redwood, which violated the terms of the TLB by purchasing a significant portion of the loan during major trading lousy debt. Byju’s had to take the steps after a series of predatory tactics by lenders led by Redwood.

Byju’s stated that on March 3, 2023, the TLB lenders illegally accelerated the TLB due to certain alleged non-monetary and technical defaults. “On the back of this unconscionable accelerated growth of TLB, TLB Lenders have taken unnecessary enforcement measures, including seizing control of Byju’s Alpha and appointing their own management,” the company said. “TLB Lenders (through their Acting for GLAS Trust Company) did not stop there and began litigation in Delaware to lend credibility to these actions.”

In the Delaware lawsuit, Byju’s said the TLB lenders attempted (unsuccessfully) to strip the company of its contractual rights by “disqualifying” the lender primarily engaged in opportunistic transactions. The Delaware court rejected that attempt, ruling that the TLB lender “had failed to demonstrate irreparable harm or a balance of harm in support of the clause limiting” Byju’s rights under this contract, it said.

Nonetheless, Byju’s said TLB lenders continued to act high-handed. They sent notices demanding immediate payment of the total amount under the TLB, despite knowing that this alleged acceleration was being challenged in court. The company said that agents for the TLB lenders even refused to provide Byju’s with the TLB lender’s identity, a status that Byju’s is entitled to under the TLB. Additionally, TLB lenders have been taking steps to discredit BYJU.

At the same time, the firm said Redwood, a lender known for primarily trading distressed debt, has been increasing its exposure by acquiring a large stake in TLB in hopes of windfall gains.

“Following all these actions, Byju’s had no choice but to initiate litigation in New York, the contractually agreed forum and the challenge accelerated,” the company said. At the same time, Byju’s also served notices to the Redwood entities, disqualifying them. Once disqualification occurs, Redwood cannot exercise key rights under the TLB. Byju’s said it had shown great restraint so far, refraining from using the disqualification clause and instead working for months to reach an amicable settlement with the hawkish trader lenders.

With legal proceedings now underway in both Delaware and New York, it is clear that the entire TLB is in dispute. As such, Byju’s said it cannot and will not be expected to make any further payments, including any interest, to TLB lenders pending the court’s decision on the dispute. As communicated to TLB lenders, Byju’s said its financial position remains solid, with substantial cash reserves. As a gesture of firm commitment, the company said it remains open to discussions with TLB lenders and is ready, willing and able to continue making payments under TLB should the lenders withdraw their ill-considered action and abide by the terms of the agreement.

The company said its recent successful fundraising underscored its strong financial position, ensuring that this disagreement with lenders would not have any material impact on its operations or prevent it from continuing to deliver innovative learning to millions of students around the world ability to experience. “Byju’s remains focused on its mission to transform education and looks forward to quickly addressing this issue while remaining steadfast in advancing its vision for the future of education,” the company said.

The Bengaluru-based company’s US entity, Byju’s Alpha, was recently sued in Delaware by a lender’s attorney, owing $1.2 billion. According to the sources, this comes after months of negotiations between creditors and Byju’s. The lawsuit was brought by GLAS Trust Company and investor Timothy R Pohl against Byju’s Alpha, Tangible Play and Riju Raveendran. The two companies being sued are Think and Learn Private subsidiaries, an edtech company founded by Byju Raveendran.

Lenders have reportedly accused the company of entities without employees for hiding $500 million in a fight between creditors and the ed-tech company. The charge was made last month at a court hearing in Delaware, where Alpha faces a lawsuit over who should control the company.

According to media reports, the company has a deadline to pay $40 million in interest on its $1.2 billion loan. The company plans to meet the June 5 deadline, they said. According to a Bloomberg report, the situation remains fluid, with a failure to meet that date meaning $1.2 billion in loans will default.

Meanwhile, according to people familiar with the matter, Byju’s has raised Rs 2,000 crore ($250 million) in a structured instrument deal from US investment firm Davidson Kempner Capital Management. The funds were raised through convertible notes issued by Aakash. Davidson Kempner Capital Management will acquire a stake in Aakash’s upcoming listing. This is part of a $1 billion funding round the company is raising through a combination of equity and structured vehicles at a valuation of $22 billion. About $700 million of the $1 billion is expected to come from equity, which Byju’s is in talks with existing and new investors. These include investors such as Abu Dhabi sovereign wealth fund ADQ.

The funding is expected to help Byju support AESL’s IPO plans. Byju’s acquired Aakash in 2021 for $1 billion.

But Byju’s has more challenges than just raising money. The company has yet to submit its 2021-22 results to the Ministry of Corporate Affairs (MCA). Other edtech unicorns such as Unacademy, upGrad, Vedantu, PhysicsWallah and Eruditus have already filed their FY22 financial reports. The company was supposed to file its annual results with the MCA by September last year. However, it has been delayed by more than seven months. This follows the company filing its FY21 results in September 2022 after a nearly 18-month delay.