Karat Packaging Inc.KRT
Karat Packaging Inc. Debt Disclosure
Line of Credit
Pursuant to the terms of the Business Loan Agreement, dated February 23, 2018, between Lollicup, as borrower, and Hanmi Bank, as lender (as amended, the “Loan Agreement”), the Company has a line of credit with a maximum borrowing capacity of $40,000,000 (the “Line of Credit”) secured by the Company’s assets. The Company is not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. The Company is required to comply with certain financial covenants, including a minimum current ratio, minimum debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio and a minimum fixed charge coverage ratio.
On March 14, 2023, the Company amended the Line of Credit. Prior to March 14, 2023, interest accrued at the annual rate of prime less 0.25% with a minimum floor of 3.25%. The amendment on March 14, 2023, among other things, (1) extended the maturity date to March 14, 2025, and (2) revised the interest on any Line of Credit borrowings to an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.0%. The Line of Credit also includes a standby letter of credit sublimit, which was amended and increased to $5,000,000 from $2,000,000 on June 20, 2023.
The Company had no borrowings outstanding under the Line of Credit as of both December 31, 2024 and 2023. The amount issued under the standby letter of credit was $3,813,000 and $3,766,000 as of December 31, 2024 and 2023, respectively. As of December 31, 2024, and 2023, the maximum remaining amount that could be borrowed under the Line of Credit was $36,187,000 and $36,234,000, respectively. As of both December 31, 2024 and 2023, the Company was in compliance with the financial covenants under the Line of Credit.
As described in Note 22 — Subsequent Events, on March 3, 2025, the Company amended the Line of Credit again, which among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the revolving loan facility to $20,000,000, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%.
Long-Term Debt Long-term debt consists of the following:
| December 31, 2024 | December 31, 2023 | ||||||||||
| (in thousands) | |||||||||||
The 2026 Term Loan, with an initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022, which the Company exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $116,000 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of the Company’s stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. | $ | 20,923 | $ | 21,555 | |||||||
The 2027 Term Loan, with an initial balance of $20,700,000 and an option to request for additional advances up to a maximum of $8,000,000 through June 30, 2023, which the Company exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Prior to August 1, 2023, principal and interest payments of $104,000 are due monthly. Beginning August 1, 2023, monthly principal and interest payments increased to $144,000 for the remainder of the loan term, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of the Company’s stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt coverage ratio. | 27,676 | 28,166 | |||||||||
| Long-term debt | 48,599 | 49,721 | |||||||||
| Less: unamortized loan fees | (141) | (203) | |||||||||
| Less: current portion | (1,179) | (1,122) | |||||||||
| Long-term debt, net of current portion | $ | 47,279 | $ | 48,396 | |||||||
At December 31, 2024, future maturities are:
| (in thousands) | |||||
| 2025 | $ | 1,179 | |||
| 2026 | 20,798 | ||||
| 2027 | 26,622 | ||||
| $ | 48,599 | ||||
The Company was in compliance with all of its financial covenants as of both December 31, 2024 and 2023.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 14, 2025 | Showing above |
| 2022 | Mar 16, 2023 | |
| 2021 | Mar 31, 2022 | |
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.