Recapitalization occurs when the debt and equity structure of a business is significantly altered. This usually means converting outstanding debt to a firm's equity in order to put the business on a more solid financial footing. This process is typically not beneficial to creditors, who are swapping the security of debt repayments for the insecurity of equity ownership. A recapitalization can also occur when a significant offering of new shares is issued. The intent behind the offering is to use the resulting cash to pay down debt. This has the same effect as the debt for equity swap just noted.
A recapitalization can also be used in the reverse direction, taking on debt in order to buy back shares. Doing so places the company in a riskier financial position, which makes it less attractive to a hostile acquirer.