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Recapitalization Definition

What is a Recapitalization?

A Brief Explanation of a Recapitalization | Definition

A recapitalization is a corporate reorganization of the capital structure of the firm. Recapitalization normally involves the exchange of debt for equity or equity for debt. There are several types of recapitalizations including leveraged recapitalizations, leveraged buyouts, and nationalization. The goal of a recapitalization can be to change the controlling interests in a company, allow some investors to exit an investment, increase share price, and prevent hostile takeover.

A leveraged recapitalization is where a company issues securities, like bonds, to raise money and repurchase its own shares. This can induce an increase in share price and reposition the ownership and control of a firm. A leverage buyout is essentially a leverage recapitalization where the restructuring is initiated by an outside group, like a private equity firm. Nationalization is a similar process where the nation in which the company is headquartered becomes the majority shareholder in the firm.

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