Dividend recapitalization

As with other leveraged transactions, if a firm cannot make its debt payments, meet its loan covenants or rollover its debt it enters financial distress which often leads to bankruptcy.

Therefore, the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions and financial crises.

[3] Typically a dividend recapitalization will be pursued when the equity investors are seeking to realize value from a private company but do not want to sell their interest in the business.

[5] In their relatively brief period of management of Hostess Brands, maker of Twinkie brand snack cakes and other products, Apollo Global Management and C. Dean Metropoulos and Company added leverage and took a $900 million dividend, "the third largest of 2015" in the private equity industry.

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