Glossary - Leveraged Recapitalization
Leveraged recapitalization is a financial strategy in which a company takes on additional debt to either buy back shares or pay dividends to shareholders, effectively restructuring its capital structure without altering the underlying ownership of the business. It can be used as a tactic to thwart takeover attempts, increase shareholder value, or adjust the company's financial strategy. This process increases the proportion of debt in the company's capital structure, potentially boosting return on equity under certain conditions by taking advantage of the tax deductibility of interest expense.
Also known as
- Leveraged restructure
- Debt recapitalization
Use cases examples
- Shareholder Agreements: In accordance with the provisions of the leveraged recapitalization plan, the company shall issue new debt instruments in the form of senior secured notes to existing shareholders, proportional to their shareholding.
- SEC Filings: The company executed a leveraged recapitalization that involved issuing $300 million in corporate bonds with the proceeds allocated towards an accelerated share repurchase program as detailed in our latest 10-K filing.
Considerations for investors
- The risk-return profile of the investment may change significantly post-recapitalization, as the increased leverage can amplify both profits and losses.
- Investors should scrutinize the terms of the new debt, including interest rates, maturity, covenants, and the potential for dilution of equity interests, especially in the case where new shares are issued.
Considerations for founders
- Assessing the impact on the company's financial health and credit rating, as increased debt levels could restrict future financing options and increase financial risk.
- Evaluating the potential for loss of control or changes in the shareholder base, especially if recapitalization includes issuing new equity or if the debt comes with covenants that constrain management's decision-making.
Get to know our world class tools and services
Transform your operations with world class tools
We have created several tools to help investors spot the best opportunities and manage their portfolio.
Let's unlock your business potential with Automations
Embrace the future with our tailored subscription service that combines strategic planning and practical implementation.