Recapitalization is a sort of a corporate reorganization involving substantial change in a company's capital structure

Capital structure

In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80...

. Recapitalization may be motivated by a number of reasons. Usually, the large part of equity is replaced with debt or vice versa. In more complicated transactions, mezzanine financing and other hybrid securities are involved.

Leveraged Recapitalization

One example of recapitalization is a leveraged recapitalization

Leveraged recapitalization

In corporate finance, a leveraged recapitalization is a change of the capital structure of a company, a substitution of equity for debt —e.g. by issuing bonds to raise money, and using that money to buy the company's stock or to pay dividends...

, wherein the company issues bonds

Bond (finance)

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 to raise money, and then buys back its own shares. Usually, current shareholders retain control. The reasons for this sort of recapitalization include:

• Desire of current shareholders to partially exit the investment
• Providing support of falling shareprice
• Disciplining the company that has excessive cash
• Protection from a hostile takeover
• Rebalancing positions within a holding company

Leveraged Buyout

Another example is a leveraged buyout

Leveraged buyout

A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage...

, essentially a leveraged recapitalization initiated by an outside party. Usually, incumbent equityholders secede control. The reasons for this transaction may include:

• Getting control over the company via a friendly or hostile takeover
• Disciplining the company with excessive cash
• Creating shareholder value via gradual debt repayment

Nationalization

Another example is a nationalization

Nationalization

Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...

, wherein the nation in which the company is headquartered buys sufficient shares of the company to obtain a controlling interest

Controlling interest

Controlling interest in a corporation means to have control of a large enough block of voting stock shares in a company such that no one stock holder or coalition of stock holders can successfully oppose a motion...

. Usually, incumbent equityholders lose control. The reasons for nationalization may include:

• Saving a very valuable company from bankruptcy
• Confiscation of assets
• Executing the eminent domain
  Eminent domain
  Eminent domain , compulsory purchase , resumption/compulsory acquisition , or expropriation is an action of the state to seize a citizen's private property, expropriate property, or seize a citizen's rights in property with due monetary compensation, but without the owner's consent...
  
  right