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Simple English definitions for legal terms
recapitalization
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A quick definition of recapitalization:
Recapitalization is when a company changes the way it raises money by adjusting its stocks, bonds, or other securities. This can be done by changing the company's articles of incorporation or merging with another company. For example, a company might eliminate unpaid preferred dividends and create a new class of senior securities. Sometimes, a company might also use recapitalization to make itself less attractive to hostile takeovers by substituting debt for equity in its capital structure.
A more thorough explanation:
Definition: Recapitalization is the process of adjusting a company's capital structure, which includes its stocks, bonds, and other securities, through changes to its articles of incorporation or by merging with a parent or subsidiary company.
For example, a company may eliminate unpaid preferred dividends and create a new class of senior securities as part of its recapitalization process.
Recapitalization can also involve substituting debt for equity in a company's capital structure, which is known as leveraged recapitalization. This is often done to make the company less attractive to hostile takeovers.
Example: Company A decides to undergo recapitalization by issuing new shares of stock and using the proceeds to pay off its existing debt. This will change the company's capital structure and reduce its debt-to-equity ratio, making it more attractive to investors.
Explanation: In this example, Company A is adjusting its capital structure by issuing new shares of stock and using the proceeds to pay off its existing debt. This will change the company's financial position and make it more attractive to investors who are looking for a company with a lower debt-to-equity ratio.