Recapitalization is a change in company's capital structure, in order to make it more stable, to defend against hostile takeovers, and diversify debt to equity ratio in order to improve liquidity or even to minimize taxes.
Essentially, process of recapitalization usually includes exchange of one form of financing for another, which is more preferable, like when replacing bonds with stocks or vice versa.
If a company wants to diversify their debt to equity ratio in order to improve liquidity, it will issue a portion of stock in order to make debt securities buy-back and increase its equity capital in favor to debt capital percentage. By increasing equity capital in debt to equity ratio, it actually lowers its leverage and make the shares less risky for shareholders.
Bankrupt companies may also conduct recapitalization in order to reorganize its finances.
