In a dividend recap, what is the main purpose of taking on additional debt?

In a dividend recapitalization, the primary objective of taking on additional debt is to pay a special dividend to private equity firms. This typically occurs when a private equity firm wants to return capital to its investors without selling the company or selling equity. By increasing the company's leverage through new debt, the firm can extract cash and distribute it to its investors as a dividend.

This strategy allows the private equity firm to realize a return on its investment while maintaining ownership of the company. The additional debt is secured by the company’s assets and expected future cash flows, which can make it an attractive option for private equity firms looking to generate liquidity. Thus, the rationale centers around maximizing returns for investors rather than financing new projects, reducing leverage, or directly increasing operational income.