Leveraged recapitalisation
Borrowing heavily to buy back shares or pay a special dividend, shifting the capital structure towards debt. It may lower the cost of capital through the tax shield, but raises financial risk.
Where you will meet it
Leveraged recapitalisation appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Set out the kinds of corporate restructuring and why issuers undertake them
“Restructuring actions reshape it without changing its scope much: cost programmes, balance sheet changes such as leveraged recapitalisations or sale-leasebacks, and reorganisation under creditor protection.”
- Assess restructurings aimed at costs or at the balance sheet
“Balance sheet restructurings change financing: leveraged recapitalisations add debt to buy back shares, which may lower WACC through the tax shield while raising financial risk; sale-leasebacks release cash from assets but create lease obligations.”
See also
Capital structure · Tax shield
Practise it
Practise leveraged recapitalisation until it is automatic: questions that explain every wrong option.
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