Recapitalization
With recapitalization , the liabilities side of a balance sheet is restructured or reassembled according to the type of financing ( equity , mezzanine capital , debt ). The term was originally used to describe the goal of more equity, so that the company's own influence grows and at the same time the creditworthiness is improved. In the modern world of finance, on the other hand, the term is only equated with a change in the financing structure or capital structure , provided that the balance sheet is extended; otherwise there is decapitalization. In the case of recapitalization, there is usually a parallel redistribution among investors, shareholders and adjustment of the term of the financing instruments (e.g. tranching).
Private equity
In private equity- financed companies, recapitalization is the replacement of part of the equity tied up in the company with debt capital. The funds released then flow back to the private equity fund. The aim is to replace the relatively expensive equity that is tied up in the company with lower-interest borrowed capital. Since equity represents a risk buffer and a reduction in the equity ratio decreases the company 's creditworthiness, this measure increases the company's risk of insolvency. The term "recapitalization" is completely misleading from the company's point of view: capital is withdrawn from the company, not added. This use of the word is therefore criticized as a euphemism .
Corporate restructuring
In corporate restructuring, recapitalization can mean an injection of equity. Finally, under the Financial Market Stabilization Fund Act , companies in the financial sector can make use of the Financial Market Stabilization Fund for recapitalization under certain conditions. Recapitalization is understood to mean the increase in core capital through the financial market stabilization fund. In the case of insurance companies and pension funds , priority is given to increasing equity . The fund can currently provide capital until December 31, 2009.