Explanation:

• Option A (Incorrect): A higher current ratio indicates better liquidity, which suggests a company can meet its short-term obligations. This does not signal reduced debt capacity. A lower current ratio would indicate liquidity problems and reduced debt capacity.

• Option B (Incorrect): A lower leverage ratio indicates less debt relative to equity, which implies the company has unused debt capacity. A higher leverage ratio would signal reduced debt capacity due to increased default risk.

• Option C (Correct): The interest coverage ratio measures a company's ability to meet its interest obligations. A decrease in this ratio indicates reduced earnings relative to interest expenses, signaling a diminished ability to service additional debt and thus reduced debt capacity.