Preheat oven to 375F degrees. Line a baking sheet with parchment paper.
Slice each strip of bacon in half horizontally. Wrap one water chestnut in a piece of bacon and secure it with a toothpick. Place the water chestnuts seam side down on the baking sheet.
Bake for 15 minutes.
While the water chestnuts are baking, combine the ketchup, brown sugar, soy sauce and cayenne pepper in a small bowl.
Remove the water chestnuts from the oven. Brush with the ketchup mixture. Place them back into the oven for another 20 minutes.