A company’s pro forma debt/EBITDA ratio increases from 2.0x to 5.0x after a leveraged recapitalization. Which of the following is the most likely outcome regarding its credit rating?

1. AThe credit rating will likely be downgraded due to increased leverage risk.✓ Correct answer
2. BThe credit rating will be upgraded due to improved equity returns.
3. CThere will be no change in credit rating if interest rates remain stable.
4. DThe company will be ineligible to issue further equity.

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