recapitalization investment & finance definition

A method of exchanging some of the debt of a debt-burdened company by exchanging that debt for new debt with a lower interest rate or a longer maturity or for common stock. When a recapitalization occurs, the current creditors lose money because they agree to take less money than what they ordinarily would have taken. However, if they exchange that debt for equity, they have created the possibility that the stock may one day appreciate and eventually provide a profit. Without recapitalization, the company would likely file for bankruptcy.