What is a Recapitalization (recap)?

What-is-a-Recapitalization-650Restructuring a company’s debt and equity mixture, most often with the aim of making a company’s capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company’s capital structure and replacing them with bonds.

A good example is when a company issues stock in order to buy back debt securities, thus increasing its proportion of equity capital as compared to its debt capital.