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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.

Types of Recapitalization[edit]

Leveraged Recapitalization[edit]

One example of recapitalization is a leveraged recapitalization, wherein the company issues bonds to raise money, and then buys back its own shares. Usually, current shareholders retain control. The reasons for this sort of 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 marker[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, wherein the nation in which the company is headquartered buys sufficient shares of the company to obtain a controlling interest. Usually, incumbent equityholders lose control. The reasons for nationalization may include:

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

See also[edit]