DEFA14A: Katapult Holdings Secures Amended $110M Revolving Credit and $32.65M Term Loan, Faces Significant Dilution and Default Risks

Katapult Holdings, Inc. has entered into an amended and restated loan and security agreement, upsizing its revolving credit facility to $110 million and continuing a $32.65 million term loan, while issuing new warrants, all subject to significant stockholder approval and financial covenants.

Summary

• Katapult Holdings, Inc. (the "Company"), through its subsidiaries, entered into an Amended and Restated Loan and Security Agreement on June 12, 2025, with Midtown Madison Management LLC as Agent and other lenders.
• The agreement provides for an amended and upsized revolving credit facility (the "New Revolving Facility") in an initial committed amount of $110,000,000, which includes $20,000,000 of new commitments.
• It also includes an amended term loan facility (the "New Term Loan") in an initial principal amount of $32,654,469.23, representing a continuation of existing term loans.
• The New Revolving Facility bears interest at a rate per annum equal to a term Secured Overnight Financing Rate (SOFR)-based rate, subject to a 3% floor and an applicable credit adjustment spread of 0.10%, plus 7.00% per annum.
• The New Term Loan bears interest at a rate per annum equal to 18.00%, which accrues to the principal balance as paid-in-kind (PIK) interest on a weekly basis.
• The maturity date for the New Revolving Facility is the Maturity Date, which is September 1, 2025, unless Requisite Stockholder Approval is obtained by that date, in which case it extends to December 4, 2026.
• The New Term Loan's maturity date is the earlier of December 4, 2026, or September 1, 2025, if Requisite Stockholder Approval is not obtained.
• The agreement includes financial covenants such as Minimum Trailing Three-Month Net Origination levels, Minimum Liquidity (starting February 2026), and compliance with a Term Advance Rate.
• Class B Lenders (holding 51% of New Term Loans) have the right to convert up to 100% of outstanding New Term Loans into Common Stock (Conversion Stock) at a price based on VWAP with discounts, or a $2.00 per share floor, following Requisite Stockholder Approval.
• In connection with the agreement, the Company issued Warrants to entities affiliated with Blue Owl Capital Inc. for up to an aggregate of 486,264 shares of Common Stock at an exercise price of $0.01 per share, expiring June 12, 2032.
• The Refinancing Agreement is secured by substantially all assets of Katapult SPV-1 LLC, Katapult Group, Inc., and Katapult Holdings, Inc.
• Lenders waived certain existing defaults conditional on the occurrence of Requisite Stockholder Approval before September 1, 2025.
• The Company intends to pursue strategic alternatives to repay the Term Loan, including refinancing, equity capital raises, and a sale of the business, with no assurances of success.

Sentiment

Score: 3

Explanation: While the refinancing provides immediate liquidity and a conditional waiver of past defaults, the terms are highly unfavorable (very high interest, significant dilution potential, strict covenants with a history of non-compliance), indicating ongoing financial distress and substantial risk for existing shareholders.

Positives

• The Company secured an upsized revolving credit facility of $110,000,000, including $20,000,000 in new commitments, providing additional liquidity.
• The continuation of existing credit facilities indicates ongoing lender support for the Company's operations.
• A conditional waiver of certain existing defaults was granted by the lenders, offering a temporary reprieve from immediate default consequences.
• The maturity date for the Term Loan can be extended to December 4, 2026, if stockholder approval is obtained, providing more time for the Company to manage its debt.
• The Term Loan bears Paid-in-Kind (PIK) interest at 18.00%, which means interest accrues to the principal balance rather than requiring immediate cash payments, preserving cash flow.

Negatives

• The Term Loan carries a very high interest rate of 18.00% (PIK), indicating significant perceived risk by lenders.
• There is substantial potential for dilution to existing stockholders, with the New Term Loan convertible into approximately 80% of the Company's equity and new warrants representing 10.7% of outstanding shares as of the issue date.
• The Company is subject to strict financial covenants, including Minimum Trailing Three-Month Net Originations, Minimum Liquidity, and Term Advance Rate, which it has explicitly stated it has failed to comply with in the past under the Existing Credit Agreement and may fail to comply with in the future.
• Failure to obtain Requisite Stockholder Approval by September 1, 2025, will result in the immediate termination of the Refinancing Agreement and acceleration of all obligations.
• The waiver of existing defaults is conditional, and there is no guarantee that lenders will grant future waivers for any new defaults.
• Restrictive negative covenants limit the Company's operational flexibility, including restrictions on incurring additional indebtedness, paying dividends, making investments, and engaging in certain transactions with affiliates.
• The Company has substantial indebtedness of approximately $113.1 million as of June 12, 2025, which is significant relative to its revenue and cash flow, increasing vulnerability to economic downturns.

Risks

• If stockholders fail to approve the Proposals (Requisite Special Stockholder Meeting Items) at the Special Meeting or by September 1, 2025, the Refinancing Agreement will terminate, and all obligations will accelerate, which would have a material adverse effect on the business, results of operations, and financial position.
• The Company may fail to comply with financial covenants (Minimum Trailing Three-Month Net Originations, Term Advance Rate, Minimum Liquidity) or other covenants in the Refinancing Agreement, potentially leading to an Event of Default, acceleration of repayment, and foreclosure on substantially all assets.
• The Company has a history of non-compliance with similar or identical financial and reporting covenants under the Existing Credit Agreement, increasing the likelihood of future breaches under the Refinancing Agreement.
• There is no guarantee that lenders will grant waivers for future events of default, even though they have done so in the past.
• The rights of the lenders under the Refinancing Agreement are fully transferable and assignable, meaning transferees may not be willing to grant waivers or have interests aligned with the Company and its stockholders.
• The New Term Loan and Warrants may result in substantial dilution to existing stockholders, with the Term Loan potentially converting into approximately 80% of the equity and new warrants representing 10.7% of outstanding shares as of the issue date.
• Substantial indebtedness (approximately $113.1 million as of June 12, 2025) may reduce the Company's capability to withstand adverse developments, limit access to additional financing, hinder debt servicing, restrict adaptation to market changes, and place it at a competitive disadvantage.
• Restrictive covenants and financial maintenance covenants in the Refinancing Agreement could limit the Company's operations or ability to pursue growth strategies or initiatives, including potential mergers and acquisitions.
• In the event of default or upon maturity, if the Company lacks sufficient liquid assets, lenders have the right to foreclose on all assets, potentially leading to cessation of operations or bankruptcy.
• The conversion of the New Term Loan into Common Stock by Class B Lenders can occur upon an Event of Default, potentially accelerating dilution if covenants are breached.

Future Outlook

The Company, Holdings, and Borrower intend to continue pursuing strategic alternatives to repay the Term Loan, which include refinancing the Refinancing Agreement, raising equity capital, and potentially selling the business. However, there are no assurances that these efforts will be successful.

Management Comments

• "The Company, Holdings and Borrower intend to continue to pursue strategic alternatives to repay the Term Loan, including refinancing the Refinancing Agreement, equity capital raises and a sale of the business. There can be no assurances that these efforts will be successful."

Industry Context

This refinancing agreement is a critical development for Katapult Holdings, a company operating in the consumer lease financing industry, often serving customers who may not qualify for traditional credit. The terms, particularly the high PIK interest rate on the term loan and the significant potential for equity dilution, reflect the inherent risks and capital intensity of this sector. The strict financial covenants related to lease originations and collections are typical for asset-backed lending in this space, emphasizing the importance of portfolio performance. The need for stockholder approval for debt-to-equity conversion and the explicit mention of past covenant breaches highlight the challenging operating environment and the Company's specific financial pressures within the industry.

Corporate Governance

Related Party Transactions

• The Amended and Restated Loan and Security Agreement is with Midtown Madison Management LLC as Agent and lenders, including entities affiliated with Blue Owl Capital Inc., which also received Warrants.
• The Servicing Agreement is between the Borrower and Holdings (an affiliate), where Holdings acts as the servicer for the Pledged Leases.

Stakeholder Impact

• Shareholders: Face significant potential dilution (up to 80% from Term Loan conversion, 10.7% from new warrants), risk of share price volatility, and potential loss of investment if the Company fails to meet covenants or enters bankruptcy.
• Lenders (Blue Owl Capital Inc. affiliates): Benefit from high interest rates (18.00% PIK on Term Loan), a secured position on substantially all Company assets, and the option to convert debt into a significant equity stake.
• Employees: Potential job insecurity if the Company's financial distress leads to operational curtailment or bankruptcy.
• Customers (Account Lessees): Indirectly impacted by the Company's financial stability, which could affect service quality or the availability of lease financing options.
• Suppliers/Merchants: Business relationships and payment terms could be affected by the Company's financial health and liquidity constraints.

Next Steps

• The Company will submit the issuance of equity securities in connection with the Refinancing Transaction to its stockholders for consideration.
• The Company will file a proxy statement with the SEC to solicit stockholder approval for the proposed transaction.
• The Company's board of directors is obligated to recommend that stockholders vote in favor of approving the Requisite Special Stockholder Meeting Items.
• The Company intends to continue pursuing strategic alternatives to repay the Term Loan, including refinancing the Refinancing Agreement, equity capital raises, and a sale of the business.
• The Company must maintain compliance with new financial covenants, including Minimum Trailing Three-Month Net Originations, Minimum Liquidity (starting February 2026), and Term Advance Rate.

Key Dates

Recommendation

Keywords

Refinancing Agreement, Revolving Credit Facility, Term Loan, Warrants, SEC Filing, DEFA14A, Financial Covenants, Dilution, Risk Factors, Corporate Debt, Liquidity, Loan Agreement, Consumer Lease Financing, Katapult Holdings