What is the primary purpose of a dividend recapitalization?

The primary purpose of a dividend recapitalization is to pay a dividend using newly raised debt. In this financial maneuver, a company takes on additional debt to finance a dividend payout to its shareholders. This strategy is often employed by private equity firms that want to extract cash from their investment in a company without selling their equity stake. By borrowing against the company's assets, the firm can issue a substantial dividend, rewarding investors while simultaneously maintaining ownership. This approach can also signal confidence in the company's cash flow and financial stability, as it shows that management believes the business can support the new debt level.

The other options reflect different financial strategies but do not capture the essence of a dividend recapitalization. Selling the company to a new buyer involves asset disposition, reinvesting back into the company focuses on growth or operational enhancement, and raising equity capital for expansion pertains to securing funds for future investment rather than returning cash to shareholders.