ShmoopTube

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finance a la shmoop what is recapitalisation all right people think

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nee capitalization you know in Jersey like when you owe the mob money at least [thug breaks knee with bat]

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that's what it feels like if you're a common equity stockholder of a company [businessman with common stock]

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that has been recapped well usually recapitalisation is a very kindly loving

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politically correct term for a pal you're bankrupt you borrowed money you

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promised to pay back and you didn't so now you're out and the lenders now own

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your company buh and buy so typical recap comes from a company that was very

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early stage and had preferred stock upon preferred stock from venture capital

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investors sitting above their common in the priority stack and eventually the

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company burned through eighty seven million dollars and it has just a [dollars on fire]

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million bucks left in the bank and it built something out of that eighty seven [company logo graveyard]

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million not quite worth putting here yeah but it might be worthy of a new

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investment of say yo thirty million or more dollars but the marketplace values [money going into company briefcase]

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this zombie company yes that's what they're called at a [zombie briefcase walking at night]

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value well less than the eighty seven million that has been raised previously

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so everything is marked down usually with a common in total being worth [store during closing sale]

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something like one percent of the new company and that's oh so sad for the

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founders because it was a hundred percent of the company the day they

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started so they were recapped and lest more mature companies feel left out well

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recapitalisation happens in later stage companies as well and the radio industry

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famously took on too much debt in the late 1990s and then people stop [radio knob getting changed]

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listening to Drivetime radio as cell phones and satellite radio intruded I

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bring radio borrowed five billion dollars at seven percent to oh three

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hundred fifty million a year and then when cash earnings fell well below that

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number while the company had to recap its five billion of debt such that those

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debt holders now own essentially all of I brain radio and hope to someday milk

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enough cash out of it to get their principal back knowing and it'll likely [goat getting milked]

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be a very low interest rate or a low return on their and

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if a positive one at all hopefully that all made sense you the first time though

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because well we don't have time here in this video for a recap

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