In corporate finance, a leveraged recapitalization is a change of the company's capital structure, usually substitution of debt for equity.
Such recapitalizations are executed via issuing bonds to raise money and using the proceeds to buy the company's stock or to pay dividends.
Debt (in the form of bonds) has some advantages over equity as a way of raising money, since it can have tax benefits and can enforce a cash discipline.
The Capital structure substitution theory shows this only works for public companies that have an earnings yield that is smaller than their after-tax interest rate on corporate bonds, and that operate in markets that allow share repurchases.
Therefore, the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions and financial crises.