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The squeeze is on at J. Crew Group Inc.

Debt watchdog Moody’s Investors Service downgraded the $2.1 billion in debt tied to J. Crew — through indirect parent Chinos Intermediate Holdings A Inc. — and said the retailer has a “very high leverage and an unsustainable capital structure.”

J. Crew declined comment on the change in rating.

Moody’s cut Chinos’ corporate family credit rating two notches, to “Caa2” from “B3,” indicating that the debt is “judged to be of poor standing” and “subject to very high credit risk.” J. Crew Group Inc.’s secured term loan due in 2021 was downgraded to “Caa1” from “B2.”

The outlook in the rating is stable and the rating agency said the cash on J. Crew’s balance sheet — $38.4 million as of Oct. 29 — and operating cash flow “will sufficiently cover cash-flow needs over the next 12 months.”

Moody’s said: “The downgrade to ‘Caa2’ reflects the continued declines in J. Crew’s revenue and EBITDA [earnings before interest, taxes, depreciation and amortization] that, when coupled with its high debt load, has led to very high leverage and an unsustainable capital structure.…Thus, the company faces a heightened probability of default, including the potential for a distressed exchange, over the next 12 to 18 months.”

The rating agency noted that J. Crew has worked to manage inventory and expenses, improve its supply chain and close underperforming stores.

But Moody’s added that “improvement will take time as challenges persist within the overall apparel retail environment, particularly related to weak customer traffic and high promotional levels.”

And the clock is ticking.

J. Crew’s $567 million in pay-in-kind toggle notes, dividends on which can be paid in cash or additional debt, come due in May 2019 and Moody’s noted “there is limited time for the company to meaningfully improve profitability and de-leverage toward a sustainable capital structure.”

Last month J. Crew said third-quarter losses shrank to $7.9 million from $759.7 million a year earlier, when the bottom line was hit by goodwill and impairment charges to write down the value of the J. Crew name. Revenues for the quarter fell 4.2 percent to $593.2 million, with sales at the J. Crew brand falling 7 percent and the much smaller Madewell gaining 12 percent.

Chairman and chief executive officer Millard “Mickey” Drexler said the results reflected “traffic challenges and a highly promotional retail environment” that would persist through the fourth quarter.

In addition to coping with a difficult environment, the retailer is managing that debt, much of which is tied to TPG Capital and Leonard Green’s $3 billion acquisition of the firm in 2011.

The company has been actively tweaking its business, exiting bridal, linking up with New Balance for a women’s active line and wholesaling the J. Crew and Madewell brands to Nordstrom.

But bondholders have been worried the company might try to separate the Madewell business from J. Crew, which is more closely tied to the underlying debt. It’s not clear that the overall business is strong enough at the moment for that to happen, given the fine print on the debt.