# Dividend Recapitalization

A **dividend recapitalization** (often referred to as a **dividend recap**) in finance is a type of [leveraged recapitalization](https://en.wikipedia.org/wiki/Leveraged_recapitalization) in which a payment is made to shareholders. As opposed to a typical [dividend](https://en.wikipedia.org/wiki/Dividend), which is paid regularly from the company's earnings, a dividend recapitalization occurs when a company raises debt —e.g. by issuing [bonds](https://en.wikipedia.org/wiki/Bond_(finance)) to fund the dividend.[1][2]

These types of recapitalization can be minor adjustments to the [capital structure](https://en.wikipedia.org/wiki/Capital_structure) of the company, or can be large changes involving a change in the power structure as well. As with other [leveraged transactions](https://en.wikipedia.org/wiki/Leveraged_finance), if a firm cannot make its debt payments, meet its [loan covenants](https://en.wikipedia.org/wiki/Loan_covenant) or [rollover](https://en.wikipedia.org/wiki/Rolling_(finance)) its debt it enters [financial distress](https://en.wikipedia.org/wiki/Financial_distress) which often leads to [bankruptcy](https://en.wikipedia.org/wiki/Bankruptcy). Therefore, the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including [recessions](https://en.wikipedia.org/wiki/Recessions) and [financial crises](https://en.wikipedia.org/wiki/Financial_crises).[3]

Typically a dividend recapitalization will be pursued when the [equity](https://en.wikipedia.org/wiki/Equity_(finance)) investors are seeking to realize value from a private company but do not want to sell their interest in the business.[1][4]

## Example

Between 2003 and 2007, 188 companies controlled by private equity firms issued more than $75 billion in debt that was used to pay dividends to the buyout firms.[5]

In their relatively brief period of management of [Hostess Brands](https://en.wikipedia.org/wiki/Hostess_Brands), maker of [Twinkie](https://en.wikipedia.org/wiki/Twinkie) brand snack cakes and other products, [Apollo Global Management](https://en.wikipedia.org/wiki/Apollo_Global_Management) and [C. Dean Metropoulos](https://en.wikipedia.org/wiki/C._Dean_Metropoulos) and Company added leverage and took a $900 million dividend, "the third largest of 2015" in the private equity industry.[6]