DEF: Katapult Holdings Faces Critical Stockholder Vote to Avert Bankruptcy Amidst Dire Financial Straits

Katapult Holdings, Inc. is urging stockholders to approve a crucial refinancing deal with Blue Owl Capital Inc. affiliates to secure liquidity and avoid imminent bankruptcy, despite significant potential dilution for existing shareholders.

Summary

• Katapult Holdings, Inc. (the 'Company') is holding a Special Meeting of Stockholders on Wednesday, August 6, 2025, to seek approval for the issuance of common stock related to a refinancing transaction.
• The refinancing involves the issuance of 486,264 shares of common stock at an exercise price of $0.01 per share to entities affiliated with Blue Owl Capital Inc. ('Blue Owl') via warrants.
• It also grants Blue Owl the right to convert a New Term Loan, with an outstanding principal of approximately $32.6 million as of June 12, 2025, into common stock, potentially issuing up to 21.4 million shares.
• The Company faced a looming maturity on its Existing Credit Agreement on June 4, 2025, and stated that the Refinancing Transaction was the 'only transaction available' to provide 'sufficient liquidity for the Company to continue operating as a going concern.'
• Without stockholder approval, an Event of Default would occur, leading to the termination of loan commitments, accelerated repayment of obligations, asset foreclosure, and likely bankruptcy.
• The approval is required to comply with Nasdaq Listing Rules 5635(b) and (d), which address potential change of control and issuance of more than 20% of outstanding common stock at a discount.
• If all warrants and term loan conversions are exercised, Blue Owl could beneficially own approximately 83.0% of the Company's then-outstanding common stock.
• The Board of Directors 'strongly believes that it is critical' for stockholders to vote FOR the proposals.

Sentiment

Score: 2

Explanation: The document reveals a company in a highly distressed financial state, facing 'substantial doubt about its ability to continue as a going concern.' While the refinancing provides a temporary lifeline, the terms are extremely unfavorable to existing shareholders, involving massive dilution and restrictive covenants, indicating severe underlying issues and high risk. The situation is presented as a last resort to avoid bankruptcy.

Positives

• The refinancing provides Katapult Holdings with 'sufficient liquidity' to continue operating as a going concern, averting immediate bankruptcy.
• The maturity date of the revolving credit facility and term loan has been extended from June 4, 2025, to December 4, 2026, contingent on stockholder approval.
• The New Revolving Facility commitment has been upsized by $20 million to $110 million.
• The Company gains additional time to pursue other strategic alternatives, including further refinancing, equity capital raises, or a sale of the business.
• The maximum eligible lease amount has been increased from $3,500 to $5,000, potentially expanding the pool of eligible collateral.

Negatives

• The Company explicitly states there was 'substantial doubt about its ability to continue as a going concern' without this refinancing.
• The transaction will result in 'substantial dilution' for existing stockholders, with Blue Owl potentially owning approximately 83.0% of the Company's shares upon full conversion and exercise of warrants.
• The Company carries 'substantial indebtedness,' with approximately $113.6 million of principal outstanding under the Refinancing Agreement as of June 12, 2025.
• The New Term Loan bears a high interest rate of 18.00% PIK (paid-in-kind), compounding weekly.
• The conversion price for the New Term Loan is at a significant discount (50% to the 20-day VWAP, with a $2.00 per share floor), further contributing to dilution.
• The Company has a history of failing to comply with financial and reporting covenants under its previous credit agreement and may face similar challenges under the new agreement.
• Failure to obtain stockholder approval for the Nasdaq Proposal would immediately trigger an Event of Default, leading to loan termination, accelerated repayment, asset foreclosure, and likely bankruptcy.
• Warrants for 486,264 shares are exercisable by Blue Owl regardless of the stockholder vote outcome.

Risks

• Failure to obtain stockholder approval for the Nasdaq Proposal by September 1, 2025, will result in an Event of Default, leading to the termination of the Refinancing Agreement, acceleration of all obligations, and potential foreclosure on substantially all assets, likely forcing the Company into bankruptcy.
• The issuance of common stock upon exercise of warrants and conversion of the New Term Loan will result in 'substantial dilution' to existing stockholders, significantly reducing their ownership interest and influence.
• The Company's 'substantial indebtedness' (approximately $113.6 million) may limit its ability to withstand adverse business conditions, obtain future financing, or adapt to changing market conditions.
• The Refinancing Agreement contains restrictive financial covenants (Minimum Trailing Three-Month Net Originations, Minimum Liquidity, Term Advance Rate) and negative covenants that could limit the Company's operations and growth strategies; failure to comply could trigger an Event of Default.
• There is no guarantee that Lenders will grant waivers for future covenant breaches, despite having done so in the past.
• The rights of Lenders under the Refinancing Agreement are fully transferable, and transferees may not have interests aligned with the Company and its stockholders.
• There are 'no assurances' that the Company's ongoing efforts to repay the New Term Loan through strategic alternatives (refinancing, equity capital raises, or a sale of the business) will be successful.
• A 'Key Man Trigger Event' would occur if Orlando Zayas ceases to be CEO and a successor approved by the Agent is not appointed within 90 days, potentially leading to an Event of Default.
• Regulatory Trigger Events (Level One: formal inquiry/investigation not resolved in 45 days; Level Two: stay/order/judgment against company) could lead to an Event of Default.
• A 'Servicer Default' or a formal enforcement order/criminal complaint relating to financial crimes or major felonies against any Credit Party could trigger an Event of Default.

Future Outlook

The Company continues to evaluate all strategic alternatives, including refinancing the Refinancing Agreement, equity capital raises, and a sale of the business, in order to repay the New Term Loan prior to its conversion being triggered. However, there are no assurances that these efforts will be successful.

Management Comments

• "We therefore strongly believe that it is critical that you vote FOR the proposals."

Industry Context

This announcement highlights the challenging financial landscape for companies in the consumer lease financing sector, where securing sufficient liquidity and managing debt maturities can be critical for continued operations. Katapult's need for this highly dilutive refinancing, despite its onerous terms, suggests a difficult operating environment and limited alternative financing options within the industry.

Corporate Governance

Legal Proceedings

• The occurrence of a 'Level One Regulatory Trigger Event' (commencement of any formal inquiry or investigation by a Governmental Authority against the Company or its affiliates challenging its authority to originate, hold, own, service, collect, pledge, or enforce Pledged Leases, or alleging non-compliance with Applicable Laws, not resolved within 45 days) would constitute an Event of Default.
• The occurrence of a 'Level Two Regulatory Trigger Event' (issuance or entering of any stay, order, judgment, cease and desist order, injunction, temporary restraining order, or other judicial or non-judicial sanction, order, or ruling against the Company or its affiliates related to originating, holding, collecting, pledging, servicing, or enforcing Pledged Leases, or rendering the Purchase and Sale Agreement or Portfolio Documents unenforceable) would constitute an Event of Default.
• A formal enforcement order or criminal complaint relating to financial crimes or major felonies brought by a Governmental Authority against any Credit Party, not dismissed or satisfied within 60 days, would constitute an Event of Default.

Related Party Transactions

• The entire refinancing transaction is with entities affiliated with Blue Owl Capital Inc., who are the Lenders and Holders of the Warrants and the New Term Loan.
• Blue Owl Capital Inc. acquired certain assets of Atalaya Capital Management LP in 2024 and assumed control of the Company's existing debt.
• The Agent, Midtown Madison Management LLC, which holds an Existing Warrant for 160,000 shares and is a party to the new Warrants, is an affiliate of Blue Owl.
• Other affiliates of Blue Owl own 4,465 Earn-out Shares, 956 shares of Common Stock, and a warrant to acquire 16,000 shares of Common Stock.
• The Servicing Agreement is with Holdings, a wholly-owned subsidiary and affiliate of the Borrower and Parent Entity.
• Intercompany loans between Credit Parties are permitted under the Refinancing Agreement.
• Transactions with affiliates are generally restricted unless on fair and reasonable terms materially no less favorable than arms-length transactions.
• Aggregate bonus payments to directors, officers, and other members of management for the fiscal year ending December 31, 2024, are capped at $3,000,000, with specific payment schedules ($500,000 by June 30, 2025; $1,000,000 by June 30, 2026; $3,000,000 by December 31, 2026).

Stakeholder Impact

• **Shareholders**: Face substantial dilution of their ownership interest and voting power (Blue Owl could own ~83.0% of shares). Their investment is at significant risk if the proposals are not approved, potentially leading to total loss in bankruptcy.
• **Lenders (Blue Owl Capital Inc. affiliates)**: Gain a secured position on substantially all of the Company's assets, significant equity upside through warrants and conversion rights, and increased control/oversight via board observer rights and restrictive covenants.
• **Employees**: Their employment is contingent on the Company's continued operation, which is secured by this refinancing. Management bonuses are capped and scheduled.
• **Customers (Account Lessees)**: The refinancing allows the Company to continue its operations, ensuring the ongoing availability of its lease-to-own services.
• **Suppliers/Merchants**: Continued business relationships with Katapult are enabled by the Company's ability to maintain operations and liquidity.

Next Steps

• Hold a Special Meeting of Stockholders on August 6, 2025, to vote on the Nasdaq Proposal (approval of stock issuance) and the Adjournment Proposal.
• The Company will continue to evaluate strategic alternatives, including refinancing the Refinancing Agreement, equity capital raises, and a sale of the business, to repay the New Term Loan.
• The Parent Entity is required to submit a Listing of Additional Shares Notification Form to Nasdaq for the listing of the Conversion Stock.
• The Parent Entity must prepare and file a registration statement on Form S-3 or Form S-1 covering the resale of Registrable Securities (Warrant Shares and Conversion Shares) no later than 45 days after the Closing Date (June 12, 2025).
• The Parent Entity must use commercially reasonable efforts to cause the registration statement to be declared effective by the SEC no later than 90 days after the Closing Date.
• The Parent Entity must take all necessary actions to reserve and keep available authorized and unissued Common Stock sufficient for a full Term Loan Conversion.

Key Dates

Recommendation

Keywords

Katapult Holdings, Refinancing, SEC Filing, Proxy Statement, Nasdaq Listing Rules, Stockholder Vote, Debt Restructuring, Warrants, Term Loan Conversion, Dilution, Bankruptcy Risk, Liquidity, Blue Owl Capital, Financial Covenants, Going Concern, Corporate Governance, Consumer Lease Financing