Cut bacon slices crosswise into thirds. Wrap each third around a water chestnut; secure with a wooden toothpick. Place on a rack in a 15x10x1-inch baking pan. Bake in a 350 degree F oven for 30 to 45 minutes or until bacon is brown and crispy.
In a small saucepan, combine ketchup and sugar. Heat and stir until mixture boils. Transfer to a 13x9x2-inch baking dish.
Remove bacon-wrapped water chestnuts from oven and place in sauce. Serve at once. Or cool, cover and chill for up to 24 hours. Reheat, covered, in a 350 degree F oven for 25 to 30 minutes or until heated through. Makes about 60 appetizers.