Kept $533 mn in fixed income assets: Byju’s

Glas Trust Co., the trustee representing lenders who had extended a loan of $1.2 billion to the world’s most valuable education technology startup in November 2021, told a Florida court on 7 September that Byju’s transferred $533 million to Camshaft Capital Fund, a Miami-based hedge fund, allegedly established by a 23-year-old with no training or experience in investing. The lenders also told the court that the official address of the hedge fund in its regulatory filings is a US restaurant chain, IHOP.

Bloomberg reported on Glas Trust’s filing against Camshaft on Tuesday.

Glas Trust is also involved in a legal case against two of Byju’s US entities in a New York court as it seeks to recover outstanding funds.

However, Byju’s denied any wrongdoing and clarified that it is the “beneficiary owner of the funds".

“As a commercially prudent borrower and like any large corporate treasury, Byju’s Alpha made investments in a multi-hundred billion dollar fund with high-security fixed income instruments," a Byju’s spokesperson said.

“Our credit agreement with lenders does not prohibit or restrict the movement or investment of monies disbursed. There is no requirement for Byju’s to maintain cash as collateral. As a matter of fact, the Delaware court ruling in June this year rejected the lenders’ application for information in relation to the amount in question, i.e. part of the funds received by Byju’s Alpha, the borrowing entity under the TLB (term loan B)."

The management also spoke to several investors, providing them with details of the transactions and the location of the funds. “Camshaft was used as a wealth adviser," a person in the know on the matter said, adding that the $533 million was moved to a reputable asset manager through Camshaft.

At the heart of the dispute is the repayment of the $1.2 billion loan availed by Byju’s in November 2021. Now, the lenders have requested the firm to repay the amount following allegations of breaching certain covenants.

Lenders have argued that Byju’s intentionally evaded them by moving the $533 million in mid-2022, which they believed would be available for servicing of the $1.2 billion loan.

Byju’s stopped servicing the loan in June, citing predatory tactics by the lenders and the ongoing litigation.

While Byju’s lenders want immediate access to the money, the edtech major has proposed a six-month repayment schedule with $300 million to be paid within 75 days.

Both parties are also pursuing out-of-court negotiations.

Despite the ongoing efforts for a mutual settlement, in court filings, lenders have alleged that Byju’s went “to great lengths to conceal the whereabouts" of the $533 million in its legal responses.

“In response to the exercise of remedies by the lenders, Byju’s eponymous founder and CEO Byju Raveendran brazenly claimed “the money is someplace the lenders will never find". In an earlier litigation filed in Delaware, the borrower’s counsel admitted in open court that it moved the funds to remove them from the reach of lenders “based on fear of lenders acting expeditiously", said a 7 September court filing seen by Mint.

The lenders also argue that “the borrower has less than $1 million in cash in hand with no other known assets to satisfy over $1 billion in debt that is due and owing."

A Byju’s spokesperson said that this referred to Byju’s Alpha, which was the borrowing entity for the loan and not the parent, Think & Learn Pvt. Ltd.

Finally, the lenders have questioned the selection of the hedge fund, describing Camshaft Capital Fund as an unknown and inexperienced firm, which accepts investments “as low as $50000" and is run by a 23-year-old fund manager William Cameron Morton with no previous investment credentials. They have claimed that since Camshaft received the $533 million, “Morton went on an extravagant spending spree, presumably financed by fees charged to the borrower’s account", according to court filings.

“Luxury cars – a 2023 Ferrari Roma, a 2020 Lamborghini Huracan EVO, and a 2014 Rolls-Royce Wraith – have been registered in Morton’s name since the transfer occurred," said the court filings.

The lenders have argued that they thought the $533 million would be available for debt service, especially in light of Byju’s Alpha having less than $1 million in hand.

The person briefed on the matter said Byju’s followed legal advice to safeguard the $533 million for its operations and transferred the money through a less-known advisor to a fund that it thought would be less influenced by the lender consortium. In the meantime, it has pursued an aggressive strategy to monetize some of its assets, the person added.

On 11 September, people familiar with the development told Mint that Byju’s had made a proposal to the lenders to repay the full $1.2 billion within six months.

Byju’s expects to make the bulk of the repayment by fast-tracking the sale of its US-based reading platform Epic and upskilling platform Great Learning. It expects the sale of the assets could fetch the company “$800 million to $1 billion", which would be enough to repay the lenders.

“The efforts of Byju’s has been in good faith to continue engaging in negotiations to settle the dispute, and it remains committed to an amicable outcome. The recent reportage by media appears maliciously instigated, and we strongly condemn these instigations which seek to destabilize a company that is attempting a turnaround," the company said on Wednesday.