Addressing Financial Distress through Capital Structure

Very Hard Capital Structure Decisions Financial Distress

ABC Corporation is facing severe financial distress due to a downturn in its primary market. The company has a high level of debt relative to its equity, and its EBITDA has declined significantly over the past year. As the CFO, you are evaluating options for restructuring the capital structure in order to mitigate the financial risk and improve the company’s viability. Which of the following strategies would most effectively address not only the immediate liquidity challenges but also the longer-term solvency concerns?

Issuing additional equity to reduce debt and strengthen the balance sheet.

Refinancing existing debt to extend maturities without changing the amount.

Implementing a roll-up strategy to acquire smaller competitors with the intention of increasing market share and cash flow.

Hint

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