8-K: Katapult Holdings Secures Amended Loan Agreement with High Costs and Significant Dilution Potential

Katapult Holdings, Inc. has entered into a new Amended and Restated Loan and Security Agreement, securing a $110 million revolving credit facility and a $32.65 million term loan, but under terms that include an 18% PIK interest rate, substantial potential equity dilution, and stringent financial covenants.

Summary

• Katapult Holdings, Inc. (KPLT) has entered into an Amended and Restated Loan and Security Agreement on June 12, 2025, with Midtown Madison Management LLC as Agent and various Lenders, including affiliates of Blue Owl Capital Inc.
• The agreement provides for a New Revolving Facility with an initial committed amount of $110,000,000, which includes a $20,000,000 increase in new commitments, continuing the existing revolving credit facility.
• The New Revolving Facility matures on the earlier of December 4, 2026, or September 1, 2025, if Requisite Stockholder Approval is not obtained by the latter date.
• Advances under the New Revolving Facility bear interest at a SOFR-based rate (subject to a 3% floor and 0.10% credit adjustment spread) plus 7.00% per annum.
• An amended New Term Loan of $32,654,469.23 is a continuation of existing term loans, bearing interest at 18.00% per annum, which accrues as paid-in-kind (PIK) interest, adding to the principal balance weekly.
• The Refinancing Agreement includes financial covenants such as Minimum Trailing Three-Month Net Origination levels, Minimum Liquidity, and compliance with a Term Advance Rate.
• Minimum Trailing Three-Month Net Originations must be at least $61,000,000 for May-October 2025, increasing to $80,000,000 by November 2026.
• Minimum Liquidity requirements begin in February 2026 at $1,000,000, increasing to $5,000,000 by July 2026.
• The Term Advance Rate must not exceed 135% until August 31, 2025, and 140% thereafter until full Term Loan conversion.
• The agreement is secured by substantially all of the Borrower's, Holdings', and the Company's assets.
• The Company issued new Warrants to entities affiliated with Blue Owl Capital Inc. on June 12, 2025, expiring June 12, 2032, entitling holders to purchase up to an aggregate of 486,264 shares of Common Stock at an exercise price of $0.01 per share.
• These new Warrants are in addition to an Original Warrant for 160,000 shares issued on March 6, 2023.
• The Term Loan includes a conversion feature (Term Loan Conversion Feature) allowing Class B Lenders to convert up to 100% of the outstanding loan into Common Stock, at a price equal to the greater of $2.00 per share or a 50% discount to the then-trailing 20-day VWAP (with the discount reducing to 0% if VWAP exceeds $15.00 per share).
• The Term Loan Conversion can occur 12 months after stockholder approval, June 30, 2026, or upon an Event of Default, potentially resulting in up to 80% equity dilution.
• Stockholder approval (Requisite Stockholder Approval) is required for the issuance of equity securities related to the Term Loan conversion and Warrants, with a Special Meeting proposed for August 6, 2024.
• Lenders waived certain existing defaults under the prior loan agreement, conditional on obtaining the Requisite Stockholder Approval by 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: 2

Explanation: The refinancing terms are highly unfavorable, characterized by a very high PIK interest rate, substantial potential dilution, and stringent financial covenants. The company's history of covenant breaches and the conditional nature of the default waiver underscore significant financial distress and operational challenges. The need for immediate stockholder approval to avoid accelerated maturity further highlights the urgency and risk.

Positives

• Katapult Holdings successfully refinanced its existing debt, securing a new $110 million revolving credit facility and a $32.65 million term loan, providing continued access to capital.
• The Lenders conditionally waived certain existing defaults under the previous credit agreement, offering a temporary reprieve from immediate acceleration.
• The maturity date for the New Term Loan can be extended from September 1, 2025, to December 4, 2026, if the necessary stockholder approval is obtained.

Negatives

• The New Term Loan carries a very high 18.00% PIK (Paid-In-Kind) interest rate, which significantly increases the principal balance over time and represents a substantial cost of capital.
• The Term Loan Conversion Feature allows lenders to convert up to 100% of the outstanding loan into common stock at a significant discount (up to 50% of VWAP, with a $2.00 floor), potentially leading to substantial dilution for existing shareholders (up to approximately 80% of equity).
• The company issued additional warrants for 486,264 shares at $0.01 per share, further contributing to potential dilution, in addition to a previously issued warrant for 160,000 shares.
• The Refinancing Agreement includes restrictive financial covenants (Minimum Trailing Three-Month Net Originations, Minimum Liquidity, Term Advance Rate) and negative covenants that limit the company's operational flexibility, including incurring additional debt, paying dividends, and making investments.
• The company has a history of failing to comply with similar financial and reporting covenants under the Existing Credit Agreement, raising concerns about future compliance under the new, equally stringent terms.
• Failure to obtain Requisite Stockholder Approval by September 1, 2025, will result in the termination of the Refinancing Agreement and acceleration of all obligations, posing an immediate and severe financial risk.
• The New Revolving Facility cannot be prepaid in full as long as any portion of the New Term Loan is outstanding, limiting financial flexibility.
• The rights of the Lenders are fully transferable and assignable, with no guarantee that any transferee will be willing to grant waivers or have interests aligned with the Company and its stockholders.

Risks

• If stockholder approval for the proposed equity issuances is not obtained 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.
• Failure to comply with financial covenants (Minimum Trailing Three-Month Net Originations, Term Advance Rate, Minimum Liquidity) or other restrictive covenants could trigger an event of default, leading to acceleration of obligations and potential foreclosure on substantially all company assets.
• The conversion of the New Term Loan into Common Stock and the exercise of Warrants will result in significant dilution to existing stockholders, potentially reducing their ownership interest and influence.
• The company carries substantial indebtedness (approximately $113.1 million as of June 12, 2025), which may limit its ability to withstand adverse economic conditions or competitive pressures.
• The restrictive covenants in the Refinancing Agreement could hinder the company's ability to pursue growth strategies, including mergers and acquisitions, or adapt to changing market conditions.
• There is no guarantee that Lenders will grant future waivers for events of default, despite having done so in the past.
• The transferability of Lender rights means that new transferees may not align their interests with the company or its stockholders.
• 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 an inability to continue operations or a bankruptcy filing.

Future Outlook

Katapult Holdings intends to pursue strategic alternatives to repay the Term Loan, including refinancing the Refinancing Agreement, equity capital raises, and a sale of the business, though there are no assurances that these efforts will be successful. The company's ability to complete the proposed Refinancing Transaction, obtain stockholder approval for the issuance of equity securities, and satisfy other closing conditions are forward-looking statements subject to various risks and uncertainties.

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."
• The Company's board of directors is committed to recommending to shareholders at the Requisite Special Stockholder Meeting that stockholders vote in favor of approving the Requisite Special Stockholder Meeting Items.

Industry Context

This financing agreement is for Katapult Holdings, a company operating in the consumer lease financing industry, specifically involving the leasing of goods (inventory) to consumers, often through 'big box retail' partnerships. The terms of the agreement, particularly the high interest rates and stringent covenants, reflect the perceived risk profile of this sector, which can be sensitive to consumer credit performance and economic downturns. The detailed covenants related to lease performance metrics (e.g., Charge-off Percentage Ratio, Cumulative Cash Collection Percentage Ratio, First Payment Default Ratio) are typical for asset-backed lending in this industry, indicating a focus on portfolio quality and collections.

Corporate Governance

Related Party Transactions

• The Warrants were issued to 'certain entities affiliated with Blue Owl Capital Inc.', which are also the Lenders and the Agent under the Refinancing Agreement.
• Holdings (a wholly-owned subsidiary of Katapult Holdings, Inc.) acts as the Servicer for the Pledged Leases under a Servicing Agreement with the Borrower, and receives a Servicing Fee equal to 3% of certain collected amounts.

Stakeholder Impact

• Shareholders face significant potential dilution (up to approximately 80% of equity) from the conversion of the New Term Loan and the exercise of Warrants, which will reduce their ownership interest and influence over the company.
• Shareholders are exposed to substantial risk, including potential loss of investment, if the company fails to obtain stockholder approval for the equity issuances or breaches the stringent financial covenants, which could lead to acceleration of debt and potential bankruptcy.
• Lenders (including affiliates of Blue Owl Capital Inc.) benefit from a secured position on substantially all of the company's assets, high interest rates (18% PIK on Term Loan), and potential equity upside through the Term Loan conversion feature and Warrants.
• Lenders gain increased oversight and control over the company's operations and strategic decisions through restrictive covenants and board observer rights.
• Employees may face job insecurity and uncertainty due to the company's precarious financial position, high debt burden, and explicit risk of bankruptcy if strategic alternatives or covenant compliance fail.

Next Steps

• Hold the Requisite Special Stockholder Meeting (proposed August 6, 2024) to seek stockholder approval for the issuance of equity securities related to the Term Loan conversion and Warrants, and potentially an amendment to the charter to increase authorized shares.
• File a proxy statement with the SEC to solicit stockholder approval for the proposed transaction.
• Continue to pursue strategic alternatives to repay the Term Loan, including refinancing the Refinancing Agreement, equity capital raises, and a sale of the business.
• Comply with ongoing financial covenants, including Minimum Trailing Three-Month Net Originations, Minimum Liquidity, and Term Advance Rate.
• Submit a Listing of Additional Shares Notification Form to Nasdaq for the listing of Conversion Stock.
• Maintain compliance with federal securities laws, including timely filing of periodic reports under the Exchange Act and registering securities if required.

Key Dates

Recommendation

Keywords

Katapult Holdings, KPLT, refinancing, loan agreement, revolving credit facility, term loan, warrants, equity dilution, financial covenants, SEC filing, 8-K, corporate finance, debt restructuring, risk factors, consumer lease financing, corporate governance