Recapitalization

Recapitalization is a corporate action that reorganizes a company's capital structure by changing the mix of debt and equity, often without altering the company’s core operations. It is used to adjust leverage, improve liquidity, or facilitate strategic transactions.

Common forms include leveraged recapitalization, in which a company borrows to fund a large cash dividend or share repurchase; equity recapitalization, which issues new equity to raise capital or redraw ownership; debt-for-equity swaps, where creditors exchange debt for equity to reduce debt load; and, in some cases, reverse recapitalizations that bring a private company to the public markets through a merger with a public shell.

Recapitalizations are used to stabilize balance sheets, optimize capital structure, fund growth, or support strategic transactions such as acquisitions, debt refinancing, or ownership changes. They can also be employed to delay bankruptcy, improve market creditability, or enable a private-equity exit.

The impact of recapitalization depends on the approach but can include increased leverage, altered ownership and control, higher earnings volatility, and potential changes in credit ratings. Tax considerations, regulatory approvals, and debt covenants may also shape the feasibility and outcomes of a recapitalization.