Finance: What is recapitalization?

What is recapitalization? Pay attention the first time, there won't be a recap.

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Transcript

00:28

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

00:33

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

00:39

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

00:45

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

00:50

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

00:54

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

00:58

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

01:02

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

01:07

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

01:11

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

01:15

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

01:19

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

01:23

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

01:26

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

01:32

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

01:37

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

01:41

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

01:45

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

01:50

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

01:54

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

01:58

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

02:03

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

02:06

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

02:10

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

02:14

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