Dividend recapitalisation (dividend recap)

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

A dividend recapitalisation is new or increased borrowing raised to pay a dividend, or repay shareholder loans, to a company's owners, most often a private equity sponsor taking back part of its investment early. The business gains no new asset: a company with EBITDA of US$10m that lifts its debt from US$25m to US$40m to pay a US$15m dividend moves from 2.5 to 4.0 times leverage. A lender reads how much of the owners' money is left beneath its loan, and the dividend must meet its market's distribution rules: New Zealand's solvency test and directors' certificate, Australia's net-assets and creditor-prejudice test, or the UK's distributable-profits rule, which borrowing cannot create.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.