Recapitalization

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A recasting of the capital structure of a corporation. A typical capitalization will contain debt (usually bonds, debentures or other loans), equity, preferred stock and common stock. Voluntary recapitalization could involve exchanging an existing bond issue or exchanging a preferred stock issue for bonds. Recapitalizations are common when public companies emerge from bankruptcy. See refinancing.

Restructuring 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.

Investopedia Says:
Recapitalization can be undertaken for a number of reasons, such as defending against a hostile takeover, minimizing taxes or to implement an exit strategy for venture capitalists. Companies often want to diversify their debt-to-equity ratio to improve liquidity. 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.

Generally speaking, when a company's debt decreases in proportion to its equity, it has lower leverage and thus, ceteris paribus, its earnings per share should decrease following the change, however its shares would be incrementally less risky, since the company's shareholders have fewer debt obligations which must be paid by the company before shareholders can see profits.

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