8-K: Katapult Secures Fourth Loan Waiver Amidst Origination Misses

Katapult Holdings, Inc. obtained a fourth limited waiver for a loan default, temporarily delaying enforcement until October 27, 2025, but triggering lender conversion rights.

Summary

• Katapult Holdings, Inc. (KPLT) entered into a Fourth Limited Waiver on October 20, 2025, related to its Amended and Restated Loan and Security Agreement.
• The waiver addresses the company's failure to maintain Minimum Trailing Three-Month Originations of at least $61,000,000 for the calendar months ended August 31, 2025, and September 30, 2025.
• This is the fourth such waiver, following previous waivers on September 15, 2025, September 29, 2025, and October 13, 2025.
• The waiver temporarily prevents the Agent and Lenders from exercising immediate remedies for the Existing Default until October 27, 2025.
• Despite the waiver, the Existing Default is deemed continuing for purposes of Conversion Rights, allowing Class B Lenders to convert up to 100% of the Term Loan into common stock.
• The conversion rate is based on the 20-day volume weighted average price (VWAP) of the common stock, which was approximately $14.49 as of October 17, 2025, subject to a specified discount.

Sentiment

Score: 2

Explanation: The company is in repeated default of a key financial covenant, requiring a fourth short-term waiver. This indicates severe operational and financial distress. The activation of lender conversion rights poses a significant dilution risk to existing shareholders, reflecting a very negative outlook.

Positives

• Secured a temporary waiver, preventing immediate enforcement actions by lenders.
• The waiver provides a very short grace period until October 27, 2025, to address the underlying default.

Negatives

• Repeated failure to meet the Minimum Trailing Three-Month Originations covenant of at least $61,000,000 for August and September 2025.
• This is the fourth limited waiver in a short period, indicating persistent financial covenant breaches.
• The waiver is extremely short-term, expiring on October 27, 2025, suggesting ongoing instability.
• The Existing Default is deemed continuing for Conversion Rights, allowing Class B Lenders to convert up to 100% of the Term Loan into common stock, leading to potential significant equity dilution.
• The company has released the Agent and Lenders from all claims originating on or before the waiver date, excluding fraud, gross negligence, or willful misconduct.

Risks

• Operational Performance: Continued failure to meet Minimum Trailing Three-Month Originations covenant (below $61,000,000) indicates ongoing challenges in core business performance.
• Liquidity/Solvency: Persistent covenant breaches raise concerns about the company's financial health and ability to meet future obligations without further lender accommodations.
• Equity Dilution: Class B Lenders have the right to convert up to 100% of the Term Loan into common stock at a rate based on the 20-day VWAP (approximately $14.49 as of October 17, 2025), which could significantly dilute existing shareholders.
• Short-Term Waiver: The waiver is only effective until October 27, 2025, creating immediate uncertainty about the company's status post-waiver.
• Lender Enforcement: If the company fails to resolve the default or secure another waiver by October 27, 2025, lenders could exercise their full rights and remedies under the Loan Agreement.
• Legal Risk: Any litigation initiated by the Credit Parties against the Agent or Lenders regarding released claims would constitute an immediate Event of Default.

Future Outlook

The Agent and Lenders have made no commitment regarding how or whether the Existing Default will be resolved, nor have they given assurances for any additional or future standstill, waiver, or accommodation upon the termination or expiration of the Limited Waiver Period on October 27, 2025. Any extension or further waiver requires a new written agreement.

Management Comments

• "Each of the Credit Parties hereby acknowledges and agrees that Agent and Lenders have made no commitment as to how or whether the Existing Default will be resolved, nor have they given any assurances or commitments with respect to any additional or future standstill, waiver or accommodation of any kind upon the termination or expiration of the Limited Waiver Period, and each of the Credit Parties agrees that neither Agent nor Lenders have any obligation to extend the Limited Waiver Period."

Industry Context

This event highlights the ongoing challenges faced by companies in the lease-to-own or rent-to-own sector, particularly those reliant on consumer credit performance and origination volumes. Persistent covenant breaches and reliance on short-term waivers can signal broader industry headwinds or company-specific operational difficulties in a competitive or tightening credit market.

Comparison to Industry Standards

• NA

Legal Proceedings

• The Credit Parties have released the Agent and Lenders from all claims, counterclaims, demands, actions, causes of action, damages, costs, expenses, and liabilities originating on or before the waiver date, excluding fraud, gross negligence, or willful misconduct.
• Commencement of any litigation or legal proceedings by any Releasor against any Released Party with respect to these released claims, or challenging the validity of the release, will constitute an immediate Event of Default.

Stakeholder Impact

• Shareholders: Face significant risk of equity dilution due to the Class B Lenders' conversion rights. The repeated defaults and short-term waivers also indicate high financial risk, likely impacting share price negatively.
• Lenders: Have secured conversion rights, providing a mechanism to recover their investment by converting debt to equity, potentially at a discount.
• Employees/Customers/Suppliers: While not directly addressed, persistent financial distress and covenant breaches can indirectly impact operational stability, potentially affecting employees (job security), customers (service continuity), and suppliers (payment terms).

Next Steps

• The company must address the underlying default or secure another agreement with lenders before the waiver expires on October 27, 2025.
• Class B Lenders may exercise their conversion rights to convert Term Loan debt into common stock.

Key Dates

Recommendation

The company is in a precarious financial position, evidenced by its fourth consecutive failure to meet a critical financial covenant (Minimum Trailing Three-Month Originations of $61,000,000). The extremely short-term nature of the waiver (expiring October 27, 2025) highlights severe and ongoing operational challenges and a lack of a sustainable resolution. Crucially, the default has triggered conversion rights for Class B Lenders, allowing them to convert up to 100% of the Term Loan into common stock at a rate based on the 20-day VWAP (approx. $14.49), which will lead to substantial dilution for existing shareholders. This situation signals significant financial distress, high risk of further negative developments, and a strong likelihood of continued share price depreciation.

Keywords

Katapult Holdings, KPLT, SEC Filing, 8-K, Loan Default, Limited Waiver, Financial Covenant, Originations, Term Loan, Equity Dilution, Conversion Rights, Midtown Madison Management, Blue Owl Asset Income Fund, Nasdaq