What does recapitalization mean?

Recapitalization occurs when a company adjusts its capital structure, often with the goal of shifting its D/E ratio closer to its optimal capital structure. Such measures are taken by companies to reach their “optimal capital structure” – either to:

What is an equity recapitalization?

In an equity recapitalization, a company issues new equity shares in order to raise money to be used to buy back debt securities. The move can benefit companies that have a high debt-to-equity ratio. A high debt-to-equity ratio puts an additional burden on a company, as it must pay interest on its debt securities.

How does recapitalization work?

Recapitalization involves reorganizing the mix of capital sources, such as debt, equity, and preference shares, based on the Weighted Average Cost of Capital (WACC) and considering the company's specific needs, like desired control levels. In recapitalization, a company may issue debt or equity to adjust its capital structure.