What is a recapitalization?
A recapitalization (or recap) is a restructuring of a company’s capital structure — the mix of debt and equity — typically through a substantial change in shareholding, debt levels, dividend distribution or share buybacks. Recaps may be voluntary (financial engineering) or involuntary (response to distress or covenant breach).
Common recap structures include leveraged recapitalisations (taking on debt to pay shareholders a dividend), management recapitalisations and exchange offers swapping debt for equity. Recaps significantly affect creditor and shareholder rights and require careful tax and corporate authorisation.