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What is a dividend recapitalization (“dividend recap”)?

In a dividend recap, the company takes on new debt solely to pay a special dividend out to the PE firm that bought it. 

It would be like if you made your friend take out a personal loan just so he/she could pay you a lump sum of cash with the loan proceeds.

As you might guess, dividend recaps have developed a bad reputation, though they’re still commonly used.

All Investment Banking interview questions

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