8-K: Katapult Defaults Again, Lenders Gain Conversion Rights

Katapult Holdings, Inc. announced its fifth limited waiver on a loan default, triggering debt-to-equity conversion rights for Class B Lenders.

Summary

• Katapult Holdings, Inc. (KPLT) entered into a Fifth Limited Waiver to its Amended and Restated Loan and Security Agreement on October 27, 2025.
• The waiver addresses the company's failure to maintain Minimum Trailing Three-Month Originations of at least $61,000,000 as of August 31, 2025, and September 30, 2025, which constitutes an "Existing Default" under the Loan Agreement.
• The Fifth Limited Waiver temporarily waives this Existing Default until October 29, 2025.
• Despite the temporary waiver, the Existing Default is deemed continuing for purposes of "Conversion Rights" under the Loan Agreement.
• Class B Lenders and their assignees are now entitled to convert up to 100% of the outstanding Term Loan into common stock.
• The number of shares of Common Stock issuable upon exercise of the Conversion Rights is calculated on the basis of the average of the daily volume weighted average prices (20-day VWAP) of the Common Stock for the twenty (20) consecutive trading days ending on the date of conversion, subject to a specified discount.
• As of October 24, 2025, the 20-day VWAP was approximately $13.04.

Sentiment

Score: 2

Explanation: The filing reveals persistent financial distress through repeated covenant breaches, leading to a very short-term waiver and the activation of debt-to-equity conversion rights for lenders, which poses a significant dilution risk for shareholders.

Positives

• A temporary waiver of the existing loan default has been secured, preventing immediate enforcement actions by lenders until October 29, 2025.

Negatives

• The company has repeatedly failed to meet a key financial covenant, specifically Minimum Trailing Three-Month Originations of at least $61,000,000, for two consecutive months (August and September 2025).
• This is the fifth such limited waiver, indicating persistent operational or financial challenges.
• The default triggers conversion rights for Class B Lenders, allowing them to convert up to 100% of the Term Loan into common stock, potentially leading to significant shareholder dilution.
• The temporary waiver is very short-term, expiring on October 29, 2025, suggesting an urgent need for a more permanent resolution.

Risks

• Dilution Risk: Class B Lenders' ability to convert up to 100% of the Term Loan into common stock at a price based on the 20-day VWAP (approximately $13.04 as of October 24, 2025) poses a significant risk of dilution for existing shareholders.
• Liquidity/Solvency Risk: The recurring failure to meet loan covenants, specifically Minimum Trailing Three-Month Originations, indicates potential underlying issues with revenue generation or business volume, raising concerns about the company's financial health and ability to meet future obligations.
• Financing Risk: The short duration of the waiver (until October 29, 2025) and the repeated nature of these waivers suggest difficulty in securing long-term covenant compliance or more favorable financing terms.
• Operational Risk: The failure to meet origination targets points to potential challenges in customer acquisition, product demand, or overall market conditions impacting the company's core business.
• Default Risk: If a resolution is not reached by October 29, 2025, or if any "Limited Waiver Default" occurs, lenders could exercise full rights and remedies under the Loan Agreement, including accelerating debt or seizing collateral.

Future Outlook

The temporary waiver of the existing default is set to expire on October 29, 2025, indicating an immediate need for a more permanent resolution to the company's recurring covenant breaches. The activation of conversion rights for Class B Lenders suggests a potential future increase in outstanding common stock.

Management Comments

• Orlando Zayas, Chief Executive Officer, signed the report on behalf of Katapult Holdings, Inc.

Industry Context

The recurring defaults on origination targets may reflect broader challenges within the lease-to-own or consumer finance sector, potentially due to economic headwinds impacting consumer spending or credit quality. Companies in this space often face scrutiny regarding their ability to manage credit risk and maintain growth in fluctuating economic environments.

Stakeholder Impact

• Shareholders: Face significant potential dilution if Class B Lenders convert their debt into common stock.
• Lenders: Gain the option to convert their debt into equity, potentially mitigating their risk exposure or participating in future upside if the company recovers.

Next Steps

• The company must address the underlying issues causing the covenant breaches before the Limited Waiver Termination Date of October 29, 2025, to avoid further lender actions.
• Class B Lenders may exercise their conversion rights, leading to an increase in the number of outstanding common shares.

Key Dates

Recommendation

The company's repeated failure to meet loan covenants, evidenced by five limited waivers in a short period, signals severe and ongoing operational and financial challenges. The activation of debt-to-equity conversion rights for Class B Lenders introduces a substantial risk of shareholder dilution. The very short-term nature of the current waiver (expiring October 29, 2025) indicates a lack of a sustainable resolution and imminent financial pressure. These factors collectively point to a highly unfavorable outlook for equity investors.

Keywords

Katapult, KPLT, SEC filing, 8-K, loan default, debt conversion, financial covenant, lease-to-own, fintech, dilution, Midtown Madison Management