Recapitalisations
Produced in partnership with Alice Morgan of Sidley Austin LLP

The following Restructuring & Insolvency practice note produced in partnership with Alice Morgan of Sidley Austin LLP provides comprehensive and up to date legal information covering:

  • Recapitalisations
  • Types of recapitalisation
  • Debt for equity swap
  • Conversion of one debt instrument to another type of financial instrument
  • Share buy-back
  • Reduction of capital
  • Converting equity to a form of debt
  • Recapitalisations of distressed entities
  • Recapitalisations of solvent entities
  • Documenting a Recapitalisation

Recapitalisations

The term 'recapitalisation' refers to a company changing the proportions of its debt and equity, something which can be achieved in a variety of ways. In some cases the company undertaking a recapitalisation will be distressed and be looking to make its outstanding debt burden more manageable or inject new money for liquidity purposes, but a solvent company may also consider one.

This Practice Note examines some of the reasons a company (solvent or otherwise) might recapitalise and the circumstances in which one recapitalisation method might be favourable over another. In addition, the Practice Note covers some of the key documents and considerations which could be involved.

Types of recapitalisation

A recapitalisation can encompass the injection of new money, a debt for equity swap or a simple write-down of debt, amongst other things. Recapitalisations often combine two or more of the methods described below, sometimes including a reduction of capital, a scheme of arrangement and/or a pre-pack administration.

Common types of recapitalisation include:

Debt for equity swap

In the case of a distressed company, a creditor may be unwilling to simply write off amounts owed to it and injecting new capital may not be possible. A creditor may, however, be willing to convert some of the debt it is owed to equity, thereby reducing the negative cash-flows of a company in the short-term and allowing the creditor to share in

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