8-K: Katapult Secures $65M Capital, Restructures Debt, Adds Directors

Katapult Holdings, Inc. has secured $65 million through preferred stock issuances, repaid its term loan, amended its revolving loan, and appointed new directors following resignations.

Summary

• Katapult Holdings, Inc. (KPLT) entered into Series A and Series B Investment Agreements with HHCF Series 21 Sub, LLC (the Purchaser) on November 3, 2025.
• The Series A Convertible Preferred Stock issuance generated $35.0 million from 35,000 shares at $1,000 per share, with an initial conversion price of $12.32 per common share.
• The Series B Convertible Preferred Stock issuance generated $30.0 million from 30,000 shares at $1,000 per share, with an initial conversion price of $11.39 per common share.
• The total gross proceeds from both preferred stock issuances amount to $65.0 million.
• If fully converted, the Purchaser would beneficially own an aggregate of 5,474,800 shares of Common Stock, representing 54.5% of the issued and outstanding Common Stock, subject to an Ownership Limitation.
• Proceeds from the Series A Preferred Stock were used to repay the company's term loan in full.
• Proceeds from the Series B Preferred Stock were used to partially prepay the company's revolving loan, pay transaction expenses, and for general corporate purposes.
• A Limited Waiver and First Amendment to the Loan Agreement was executed, waiving past defaults related to Minimum Trailing Three-Month Originations for August, September, and October 2025.
• The Loan Agreement was amended to adjust future Minimum Three-Month Originations thresholds, increase the Minimum Liquidity financial covenant, and reduce the revolving loan advance rate from 99% to 90%.
• The Preferred Stock carries an annual dividend rate of 18% until shareholder approval for conversion is obtained (or the 2026 annual meeting, whichever is later), then 12% annually. This rate increases by 1% if shareholder approval is not obtained by February 27, 2026.
• The Series B Convertible Preferred Stock ranks senior to the Series A Convertible Preferred Stock and Common Stock in liquidation and dividends.
• Shareholder approval is required to remove the Nasdaq-imposed Ownership Limitation (19.99% beneficial ownership) on conversion, with a meeting to be held by February 27, 2026.
• Existing officers and directors have signed support agreements to vote in favor of removing the Ownership Limitation.
• Three directors (Brian Hirsch, Chris Masto, Jane J. Thompson) resigned, and three new directors (Philip Key Bartow III, Jeffrey Rubin, Derek Medlin) were appointed to the Board, with Daniel Easley to join after shareholder approval.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the company's recent financial defaults, the high cost and dilutive nature of the new capital, and the reduced flexibility in its revolving credit facility. While the capital raise addresses immediate liquidity and debt issues, the terms reflect a challenging financial position.

Positives

• Secured significant capital of $65.0 million through preferred stock issuances, providing crucial liquidity.
• Successfully repaid the company's senior secured term loan in full, reducing a significant debt burden.
• Partially prepaid the revolving loan, improving the company's overall debt profile.
• Obtained a permanent waiver for existing defaults on Minimum Trailing Three-Month Originations, addressing compliance issues.
• Appointed new directors with extensive financial and investment management experience (Philip Key Bartow III, Jeffrey Rubin), potentially strengthening board oversight and strategic direction.
• Existing officers and directors have committed to vote in favor of removing the ownership limitation, indicating internal alignment for the capital structure changes.

Negatives

• The company failed to meet Minimum Trailing Three-Month Originations thresholds for August, September, and October 2025, indicating operational challenges.
• The preferred stock carries a high annual dividend rate of 18%, reducing profitability for common shareholders, which decreases to 12% after shareholder approval.
• Failure to obtain Requisite Stockholder Approval by February 27, 2026, will result in a further 1% increase in the preferred stock dividend rate.
• The revolving loan advance rate was reduced from 99% to 90%, potentially limiting future borrowing capacity.
• The potential conversion of preferred stock could lead to significant dilution, with the Purchaser potentially owning 54.5% of the common stock.
• The Series B Preferred Stock ranks senior to both Series A Preferred Stock and Common Stock in liquidation and dividends, placing common shareholders at a lower priority.

Risks

• Failure to obtain Requisite Stockholder Approval by February 27, 2026, could lead to an increased dividend rate on preferred stock and continued limitations on conversion, impacting capital structure flexibility and cost.
• The company faces ongoing compliance risks with adjusted financial covenants, including Minimum Three-Month Originations and Minimum Liquidity, which could trigger future defaults if not met.
• The high dividend rates on the preferred stock could strain cash flow and reduce earnings available for common shareholders.
• Significant potential dilution from the conversion of preferred stock (up to 54.5% ownership by the Purchaser) could negatively impact existing common stock value and voting power.
• Transfer restrictions on the preferred stock and underlying common stock for 12 months or until a Fundamental Change of Control could affect liquidity for the Purchaser.
• A Change of Control event could trigger a mandatory repurchase of preferred stock at a premium (100% or 150% of liquidation preference), creating a substantial financial obligation for the company.

Future Outlook

The company is committed to seeking Requisite Stockholder Approval for the conversion of preferred stock by February 27, 2026, and will use commercially reasonable efforts to maintain its Nasdaq listing. The new capital is intended to stabilize the financial position by repaying existing debt and funding general corporate purposes. The company expects to continue timely filing of all required reports with the SEC.

Management Comments

• The company will use the proceeds for general corporate purposes and repayment of the term loans outstanding as of the Closing under the Credit Agreement.
• The company will use the proceeds from Series B Convertible Preferred Stock to partially repay the revolving loan outstanding and for other general corporate purposes as approved by the Board of Directors.
• The company will use its reasonable best efforts to obtain the Requisite Stockholder Approval, including by seeking such approval at each future special meeting and regular annual meeting of its stockholders and endorsing its approval in the related proxy materials.

Industry Context

This capital raise and debt restructuring indicate a challenging period for Katapult Holdings, Inc., a company likely operating in the consumer lease-to-own or financial technology sector. The high preferred stock dividend rates and the need for waivers on financial covenants suggest a strained financial position, potentially reflecting broader economic headwinds or specific competitive pressures within its industry. The appointment of new directors with financial expertise may signal an effort to strengthen strategic and financial management in response to these challenges.

Management Changes

Corporate Governance

Related Party Transactions

• HHCF Series 21 Sub, LLC (the Purchaser) is the sole investor in the Series A and Series B Convertible Preferred Stock issuances, totaling $65.0 million.
• The Purchaser has the right to nominate up to three directors to the Board of Directors, with two appointed immediately and one pending shareholder approval, significantly increasing its influence.
• Existing officers and directors of Katapult Holdings, Inc. entered into support agreements with the Purchaser, committing to vote in favor of removing the Ownership Limitation on preferred stock conversion.

Stakeholder Impact

• **Shareholders (Common Stockholders):** Face significant potential dilution (54.5% ownership by the Purchaser upon full conversion) and subordination to the new preferred stock in terms of dividends and liquidation preference. Their voting power will also be diluted. The high dividend rate on preferred stock will reduce earnings available for common shareholders.
• **New Investor (HHCF Series 21 Sub, LLC):** Gains substantial equity ownership and significant influence over the company's governance through board nominations. Benefits from high dividend rates and preferential liquidation rights, providing a strong return on investment.
• **Creditors (Existing Lenders):** The term loan was fully repaid, and the revolving loan was partially prepaid, improving the company's debt service capacity. However, the reduction in the revolving loan advance rate indicates a more cautious stance from lenders.
• **Management and Employees:** Board changes include the appointment of Derek Medlin (President of the Company) as a Class III Director, indicating some continuity and internal representation. The capital raise provides stability, which could benefit employees by securing the company's future operations.

Next Steps

• The company will hold a shareholder meeting to obtain Requisite Stockholder Approval to remove the Ownership Limitation on preferred stock conversion, targeted by February 27, 2026.
• The company will file a registration statement covering the resale of common stock issuable upon conversion of the preferred stock within 45 days following the closing of the preferred stock issuances.
• Daniel Easley will serve as a Class III director effective immediately following the receipt of the Requisite Stockholder Approval.

Key Dates

Recommendation

The company's need for a significant capital injection, coupled with its recent defaults on financial covenants, indicates underlying operational and financial distress. The terms of the preferred stock, including high dividend rates (18% initially, then 12%) and substantial potential dilution (54.5% ownership by the new investor upon conversion), are highly unfavorable for existing common shareholders. While the capital raise provides immediate liquidity and debt repayment, it comes at a very high cost, significantly eroding the value and future prospects for common equity. The new preferred stock's seniority in liquidation and dividends further disadvantages common shareholders. A seasoned investor would likely view these terms as a distressed financing event, suggesting a 'sell' recommendation for common stock due to the severe dilution and unfavorable capital structure.

Keywords

Convertible Preferred Stock, Capital Raise, Debt Restructuring, SEC Filing, Corporate Governance, Shareholder Approval, Dilution, Financial Covenants, Risk Management, Nasdaq Listing