Leverage-increasing transactions such as recapitalizations and leveraged buy-outs are known to create shareholder wealth. It has been argued that the only sources of this value are efficiency improvements and tax benefits brought about by the higher debt load. This paper shows empirically that contrary to popular belief a portion of this wealth comes at the expense of current bondholders. It is estimated that between 20 per cent and SO per cent of the value created during a leveraged recapitalization can be attributed to wealth transfers from bondholders to shareholders.