Definition Recapitalization. Description.
Recapitalization is restructuring a company's debt and equity mixture, most often with the aim of making a company's capital structure more healthy.
One form is Debt Restructuring: exchanging some of
the debt of a company (often in financial distress) by exchanging the debt
for new debt with a lower interest rate or with a longer maturity or for common
stock or for reorganization bonds.
Also financially healthy corporations may use it for tax reasons or other
tactics. It can be used as well as an alternative exit strategy for
venture capitalists and
leveraged buy-out sponsors. Finally
it can be used as a defense against hostile takeovers.
Another form is removing preferred shares from the company's capital structure and replacing them with bonds.
The method leads to an improvement of the
Working Capital structure of
the company. Recapitalizing may seem unfavorable to current creditors, but
it may be that if they don't cooperate to recapitalizing the company, they lose all their money in the case of bankruptcy. Also the Gearing
Ratio as well as the Debt to
Equity Ratio of the firm improve by recapitalization.
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Recapitalization Cases and Examples
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Recapitalization Special Interest Group
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Compare with: Gearing
Ratio | Debt to
Equity Ratio |
Accounts Receivable
Factoring | Restructuring
| Undercapitalization
| Turnaround Management
| Working Capital
| Sale and Leaseback
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