Definition of recapitalisation

When a company changes its capital structure (the proportion of equity to debt), This may occur, for instance, as part of a debt restructuring, when a creditor exchanges an outstanding loan for a stake in the company (debt for equity swap). While the aim of a recapitalisation is normally to improve a company's debt/equity ratio, it can also be used to fend off a hostile takeover - in which case the company makes itself unattractive by increasing the level of debt in its capital and using the funds to pay special dividends to shareholders.