recapitalization
Restructuring of a company’s debt and equity combination.
This is essentially the exchange of one form of financing for another, which may entail, for example, the exchange of bonds for stock. Potential motivations for recapitalization include improving the stability of a company’s capital structure, increasing the price of its stock, minimizing taxes, or implementing an exit strategy for venture capitalists.
Another aim may be diversifying the debt-to-equity ratio in order to improve liquidity. This may be achieved by issuing stock in order to buy back debt securities and therefore increasing the proportion of equity capital relative to debt capital.
Companies in fear of a hostile takeover may also attempt recapitalization. In so doing they might take on a very large amount of debt and issue substantial dividends to their shareholders to offset the increased amount of risk that this would create. Companies that are bankrupt often undergo recapitalization as well in the process of reorganization.
This is essentially the exchange of one form of financing for another, which may entail, for example, the exchange of bonds for stock. Potential motivations for recapitalization include improving the stability of a company’s capital structure, increasing the price of its stock, minimizing taxes, or implementing an exit strategy for venture capitalists.
Another aim may be diversifying the debt-to-equity ratio in order to improve liquidity. This may be achieved by issuing stock in order to buy back debt securities and therefore increasing the proportion of equity capital relative to debt capital.
Companies in fear of a hostile takeover may also attempt recapitalization. In so doing they might take on a very large amount of debt and issue substantial dividends to their shareholders to offset the increased amount of risk that this would create. Companies that are bankrupt often undergo recapitalization as well in the process of reorganization.
| Learn More About How Economics Move Markets |
|
|