Impact of Equity Issuance on Financial Distress

ABC Corporation is currently facing financial distress due to a significant decline in its revenue caused by adverse market conditions. The company has a considerable amount of debt on its balance sheet, leading to high interest payments that further strain its cash flow.

The management is considering various strategies to mitigate financial distress, including restructuring its capital structure. One proposal is to issue new equity to pay down some of its outstanding debt. However, management is concerned about the potential dilution of existing shareholders' equity.

Given the situation described, which of the following statements best captures a potential consequence of the proposed equity issuance on ABC Corporation's capital structure?