Capital Structure Decisions in Financial Distress

XYZ Corporation operates in the highly competitive technology sector and has recently faced declining revenues due to increased competition and changing consumer preferences. As a result, the company is experiencing financial distress, with liquidity issues and high levels of debt.

The CFO is evaluating various strategies to improve the company's capital structure and mitigate the financial risks associated with the current situation. During a presentation, the CFO highlighted that XYZ Corporation has two main options: to issue new equity or to restructure its existing debt. The CFO also mentioned the potential consequences of each option on shareholder value and financial stability.

Considering the impact of financial distress on capital structure decisions, which of the following options is most likely to reduce the company's weighted average cost of capital (WACC) while also avoiding the risk of further financial distress?