Mitigating Financial Distress through Capital Structure Decisions

ABC Corporation has been facing increasing financial distress over the past two years, leading to a substantial drop in its stock price. Analysts are concerned about its ability to meet interest payments on its debt, which has now escalated. The company has a current debt-to-equity ratio of 2.5 and a current ratio of 0.8, indicating potential liquidity issues. In response to these challenges, ABC Corporation's management is considering various strategies to strengthen its capital structure. One of the proposals is to restructure its debt obligations.

Considering the implications of financial distress, what would be the most effective approach for ABC Corporation to mitigate financial risks and enhance its capital structure?