8-K: Katapult Secures Sixth Loan Default Waiver, Lenders Gain Conversion Rights

Katapult Holdings, Inc. obtained a sixth limited waiver for a loan default, but lenders gained immediate conversion rights for the Term Loan into common stock.

Summary

• Katapult Holdings, Inc. (KPLT) entered into a Sixth Limited Waiver to its Amended and Restated Loan and Security Agreement on October 29, 2025.
• The waiver addresses the company's failure to maintain Minimum Trailing Three-Month Originations of at least $61,000,000 as of August 31, 2025, and September 30, 2025.
• This is the sixth such waiver, following previous waivers on September 15, September 29, October 13, October 20, and October 27, 2025.
• The waiver temporarily postpones the Existing Default until October 31, 2025.
• Despite the temporary waiver, the Existing Default is considered ongoing for the purpose of Conversion Rights.
• Class B Lenders and their assignees are now entitled to convert up to 100% of the outstanding 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 $12.85 as of October 28, 2025, subject to a specified discount.

Sentiment

Score: 2

Explanation: The company is in a precarious financial position, having repeatedly failed to meet loan covenants and requiring multiple temporary waivers. The granting of conversion rights to lenders signals significant financial distress and potential future dilution for shareholders. The very short duration of the waiver (until October 31, 2025) adds to the negative sentiment and uncertainty.

Positives

• Secured a temporary waiver of the existing loan default, preventing immediate enforcement actions by lenders until October 31, 2025.

Negatives

• Failed to meet the Minimum Trailing Three-Month Originations covenant of at least $61,000,000 for both August 31, 2025, and September 30, 2025.
• This is the sixth consecutive limited waiver obtained for the same default condition, indicating a persistent operational or financial challenge.
• Lenders (specifically Class B Lenders) now have immediate conversion rights for up to 100% of the Term Loan into common stock, potentially leading to significant dilution for existing shareholders.
• The waiver is only temporary, expiring on October 31, 2025, creating short-term uncertainty.

Risks

• Dilution Risk: Class B Lenders' ability to convert up to 100% of the Term Loan into common stock poses a significant risk of dilution for existing shareholders.
• Liquidity/Operational Risk: Persistent failure to meet the Minimum Trailing Three-Month Originations covenant suggests ongoing challenges in core business performance or liquidity.
• Default Risk: The waiver is temporary, and if the company fails to resolve the underlying issues or secure further accommodations, the default could be reinstated, leading to accelerated repayment demands or other lender remedies.
• Financial Covenant Breach: Continued inability to meet financial covenants could trigger further defaults and restrict access to capital.
• Litigation Risk: The agreement includes a broad release of claims against lenders, but any attempt by Credit Parties to contest the agreement or initiate litigation against lenders would constitute an immediate Event of Default.

Future Outlook

The company faces immediate uncertainty as the temporary waiver of its loan default expires on October 31, 2025. Lenders now hold conversion rights for the Term Loan into common stock, which could significantly impact future share structure and valuation.

Management Comments

• Acknowledged and agreed 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.
• Agreed that neither Agent nor Lenders have any obligation to extend the Limited Waiver Period.

Industry Context

The recurring nature of Katapult's loan covenant breaches and the need for multiple waivers suggest potential challenges within the lease-to-own or subprime lending sector, possibly reflecting tighter consumer spending, increased credit risk, or competitive pressures impacting origination volumes. This situation could indicate broader headwinds for companies reliant on consistent origination growth in this market segment.

Stakeholder Impact

• Shareholders: Face significant potential dilution if Class B Lenders convert their Term Loan into common stock. The recurring default also signals increased financial risk and uncertainty, likely impacting share price negatively.
• Lenders: Have secured additional rights (conversion of debt to equity) as a result of the default, providing a mechanism to recover value.
• 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 issues causing the failure to meet the Minimum Trailing Three-Month Originations covenant before the waiver expires on October 31, 2025.
• Lenders may exercise their conversion rights for the Term Loan into common stock at any time on or after October 29, 2025.
• Further negotiations with lenders may be required if the default is not resolved by October 31, 2025.

Key Dates

Recommendation

The company's repeated failure to meet critical loan covenants, necessitating six consecutive waivers, indicates severe and persistent operational and financial challenges. The immediate granting of conversion rights to Class B Lenders for up to 100% of the Term Loan into common stock presents a substantial and imminent risk of significant shareholder dilution. The very short-term nature of the waiver (expiring October 31, 2025) creates extreme near-term uncertainty and suggests the company is in a highly precarious position with limited options. This situation points to fundamental business weakness and a high probability of further negative developments, making the stock a strong sell.

Keywords

Katapult Holdings, KPLT, SEC Filing, 8-K, Loan Default, Waiver, Financial Covenant, Term Loan, Conversion Rights, Share Dilution, Midtown Madison Management, Originations, Credit Agreement