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Recapitalization is a type of corporate reorganization involving substantial change in a company's capital structure. Recapitalization may be motivated by a number of reasons. Usually, the large part of equity is replaced with debt or vice versa. In more complicated transactions, mezzanine financing and other hybrid securities are involved.

Leveraged recapitalization[edit]

One example of recapitalization is a leveraged recapitalization in which the company issues bonds to raise money and then buys back its own shares. Usually, current shareholders retain control. The reasons for such a recapitalization include:

  • Desire of current shareholders to partially exit the investment
  • Providing support of falling share price
  • Disciplining the company that has excessive cash
  • Protection from a hostile takeover
  • Rebalancing positions within a holding company
  • Help to improve the stock of the company during a time of poor economic conditions[1]

Leveraged buyout[edit]

Another example is a leveraged buyout, essentially a leveraged recapitalization initiated by an outside party. Usually, incumbent equityholders cede control. The reasons for this transaction may include:

  • Getting control over the company via a friendly or hostile takeover
  • Disciplining the company with excessive cash
  • Creating shareholder value via gradual debt repayment


Another example is a nationalization in which the nation in which the company is headquartered buys sufficient shares of the company to obtain a controlling interest. Usually, incumbent equity-holders lose control. The reasons for nationalization may include:

  • Saving a very valuable company from bankruptcy
  • Confiscation of assets
  • Executing eminent domain

See also[edit]


  1. ^ "What is a Recapitalization". p. 1.