New York Recapitalization Agreement
Description
How to fill out Recapitalization Agreement?
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FAQ
Equity Recapitalization The move can benefit companies that have a high debt-to-equity ratio. A high debt-to-equity ratio puts an additional burden on a company, as it must pay interest on its debt securities. Higher debt levels also increase a company's risk level, making it less attractive to investors.
Recapitalization is the restructuring of a company's debt and equity ratio. The purpose of recapitalization is to stabilize a company's capital structure. Some of the reasons a company may consider recapitalization include a drop in its share price, to defend against a hostile takeover, or bankruptcy.
Leveraged recapitalizations have a similar structure to that employed in leveraged buyouts (LBO), to the extent that they significantly increase financial leverage. But unlike LBOs, they may remain publicly traded.
Most states require that the board of directors propose amendments to the articles of incorporation and that the shareholders approve the recapitalization by a majority vote. After the business is recapitalized, non-voting shares could be transferred via gift or sale.
If the recapitalization qualifies as an exchange, the value of the debt will be treated as received in exchange for the stock. In determining gain, the value received will be offset by the shareholder's basis in the shares redeemed, and the excess will be subject to tax at capital gains rates.
Leveraged recapitalization, leveraged buyouts, nationalization, and equity recapitalization are various types of recapitalization. One may also use this process as an opening route in private equity.
Cons of Majority Recapitalization Here are a few potential drawbacks to keep in mind: Dilution of Ownership: By selling a majority stake, existing shareholders dilute their share of the company's equity into a minority position (or sell entirely), weakening their influence over decision-making.