Byju’s refutes accusations of concealing $533 million in hedge fund, cites credit agreement compliance

Edtech major Byju’s has denied allegations that its US-based subsidiary Alpha Inc concealed $533 million in an obscure hedge fund. The company said the transaction was fully within the bounds of its credit agreement with lenders, which explicitly does not proscribe or limit the movement or investment of funds disbursed under its terms.  

“As a commercially prudent borrower and like any other large corporate treasury, Byju’s Alpha has made investments in a multi-hundred billion dollar fund with high security fixed income instruments. Our Credit Agreement with the lenders does not prohibit or restrict the movement or investment of monies disbursed thereunder. There is no requirement for Byju’s to maintain cash as collateral,” a Byju’s spokesperson said.

This response follows a Bloomberg report that alleged Alpha’s transfer of over $500 million to Camshaft Capital Fund, a relatively unknown three-year-old hedge fund that, lenders claim, once said its main location was an IHOP restaurant in Miami. The fund was established by William C. Morton when he was just 23 years old, as per lenders involved in a lawsuit. Notably, the lenders argued that Morton lacked formal investment training, even as significant funds were transferred to his fund. Court documents also revealed that luxury vehicles, including a 2023 Ferrari Roma, a 2020 Lamborghini Huracán EVO, and a 2014 Rolls-Royce Wraith, were registered in Morton's name following the transfer.  

Lenders have contended in Miami-Dade County court filings that Byju's made significant efforts to obscure the destination of the borrowers' $533 million, purportedly with the intent of impeding and protracting creditors' efforts. Moreover, they claimed that Camshaft, a hedge fund apparently catering to a narrower clientele, maintained an unusually low acceptance threshold of as little as $50,000, as stated in lenders' court filings.  

Byju’s has been negotiating with its TLB (Term Loan B) lenders for several months to find an amicable resolution to the repayment crisis. Early this week, Byju’s presented a repayment proposal to its lenders, offering to pay back the entire $1.2 billion term loan in less than six months, Bloomberg reported. Subsequently, BT reported that the edtech company is engaging with potential suitors to sell two of its key assets – Great Learning and Epic – to find the long elusive fresh equity funding to pay off debts.  

“For record, the Byju’s entities are not parties to the proceedings mentioned in the recent media reports, and have not been served with copies of the complaint or motion. This is the first that we are hearing of these proceedings. The court filing appears to have been made prior to the latest loan repayment proposal. The parties continue to engage in negotiations to settle the dispute and we remain committed to an amicable outcome," Byju’s said.

The roots of the current crisis trace back to the $1.2 billion term loan Byju’s raised from a consortium of US-based creditors in November 2021 which came back to hurt the company in June this year when it missed a $40 million interest payment. It subsequently filed a lawsuit against its lenders in New York Supreme Court, countering their legal actions, accusing them of using predatory tactics. The company said it won’t make any further payment to the lenders, including any interest, until the court resolves the dispute.

“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,” the company’s statement said.

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