What is a 'leveraged recapitalization'?

A leveraged recapitalization involves a company restructuring its capital structure by taking on significant debt to finance the payment of dividends to its shareholders. This process is primarily driven by the desire to return capital to shareholders while simultaneously increasing the company's leverage.

By issuing debt, the company can provide immediate liquidity to its shareholders through dividends, which can be appealing in terms of providing an immediate return on investment. However, this strategy also increases the company's financial risk, as it now has to manage higher debt obligations. The use of leverage in this way is a strategic move often employed in private equity and corporate finance, particularly when a company is looking to reward its shareholders while avoiding the issuance of new equity, which could dilute existing ownership.

The other options do not accurately describe leveraged recapitalization. Enhancing employee satisfaction, financing new projects, or reducing corporate taxes do not capture the essence of this financial strategy focused on using debt for shareholder dividends.