Recapitalization

Description of Recapitalization. Explanation.

Definition Recapitalization. Description.

Recapitalization is a method of 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.

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 loose all their money in the case of bankruptcy.

Compare with: Gearing Ratio  |  Debt to Equity Ratio  |  Accounts Receivable Factoring  |  Restructuring  |  Undercapitalization  |  Turnaround Management  |  Working Capital  |  Sale and Leaseback

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End of description Recapitalization. An explanation.