Impact of Financial Distress on Capital Structure

ABC Corporation has recently experienced a downturn in sales and is facing liquidity issues. The firm has a high level of fixed debt obligations and is concerned about its ability to meet these obligations regularly. As part of its financial strategy, management is considering the implications of its current capital structure on the firm’s overall risk and the potential for financial distress.

Which of the following describes a direct consequence of increasing financial distress within a firm's capital structure?