Claire’s Stores Inc. was downgraded by Moody’s because of the increasingly competitive landscape, economic headwinds surrounding Europe and difficult mall traffic trends.

Moody’s said that it expects earnings to be flat from 2015 for Claire’s, which is owned by Apollo Global Management. The probability of default rating, the first lien debt and the senior secured second lien notes were all downgraded and the outlook was changed from stable to negative.

“Today’s downgrades reflect our view that there is an acute likelihood of a debt restructuring ahead of the June 2017 maturity of Claire’s subordinated notes due to continuing erosion of liquidity and weak operating performance,” stated Moody’s Vice President Charles O’Shea. “The new ratings further acknowledge the challenges faced by Claire’s to grow earnings sufficient to support its presently unsustainable capital structure.”

Moody’s doesn’t think that Claire’s will generate any free cash flow and will continue to rely on borrowing under its revolving credit facilities to fund working capital and capital expenditures. Claire’s debt to EBITDA has grown to approximately 8.3 times. The company owes nearly $2.4 billion and faces continued earnings pressure.

Moody’s is concerned that a restructuring event like a limited default is likely to occur ahead of the June 2017 bond maturity. This situation means that it is unlikely to raise the company’s rating and could potentially downgrade it further.

The ratings agency did believe that Claire’s is doing the right things by shifting its focus away from the malls, leveraging wholesale opportunities and growing its e-commerce business. Despite recent declines, the company enjoys a well-known brand name and high margins compared to its peers.

Claire’s net sales fell 6.1 percent in fiscal 2015 to $1.4 billion and same-store sales also decreased 1.2 percent for fiscal 2015. The store count dropped from 3,456 at the end of October 2015 to 3,406 at the end of January 2016.

Apollo Global Management declined to comment on the downgrade. Claire’s has not yet responded to a request for comment.