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LSDefine
Simple English definitions for legal terms
leveraged recapitalization
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A quick definition of leveraged recapitalization:
Leveraged recapitalization is a way for a company to change its financial structure by replacing some of its stocks with debt. This is usually done to make the company less attractive to potential buyers who may want to take over the company. It's like borrowing money to buy back some of your own shares.
A more thorough explanation:
Definition: Leveraged recapitalization is a process where a company changes its capital structure by replacing equity with debt. This is usually done to make the company less attractive to hostile takeovers.
Example: A company has $100 million in equity and $50 million in debt. Through leveraged recapitalization, the company replaces $50 million of equity with $50 million in debt. Now the company has $50 million in equity and $100 million in debt.
Explanation: In this example, the company has reduced its equity and increased its debt. This makes the company less attractive to hostile takeovers because the new debt holders will have priority over the equity holders in the event of a liquidation. This means that the equity holders will receive less money in the event of a takeover, making the company less attractive to potential buyers.