What is Recapitalization?
Recapitalization is a restructuring of a company's financial structure, often involving raising and reinvesting capital to increase the value of the firm's assets. This process can also involve changes in equity, debt, and other capital instruments such as convertible bonds and preferred stock.
Types of Recapitalization
Why recapitalization is done?
Recapitalization is usually done when a company needs additional funds to finance its operations or when owners want to change the ownership structure of the business. It can improve the company's financial position by creating more capital for growth and development. The process typically involves replacing existing debt with new debt or equity, thereby increasing the ratio of equity to debt in the firm's balance sheet.
Recapitalization can also be used to restructure a business’s liabilities from short-term obligations into longer-term ones that are less expensive in terms of interest rate or maturity terms. This strategy can help businesses gain access to cheaper sources of financing and reduce risk by spreading out liabilities over time.