Mitigating Financial Distress at ABC Corporation

ABC Corporation, a mid-sized manufacturing firm, has been experiencing decreasing demand for its products due to changes in consumer preferences. After a recent review, the management has noted that their debt-equity ratio has risen to 2.5, a significant increase resulting from both existing debts and a recent bond issuance. Financial analysts are projecting that the likelihood of the firm entering financial distress within the next year is high, given its substantial fixed financial obligations and declining operating cash flows.

As an analyst, you are evaluating the potential strategies ABC Corporation might consider to mitigate the risks associated with their current capital structure. Which adjustment to their financial policy could effectively reduce the probability of financial distress?