Moody’s Investors Service has downgraded NYDJ Apparel LLC’s corporate credit rating one notch to “Caa1” from “B3” and the ratings of its $162 million term loan and revolving credit facilities to “B3” from “B2” with a negative rating outlook.

Moody’s said the actions reflect NYDJ’s “weak liquidity and high leverage as a result of declines in the denim category,” which contributed to a 10 percent drop in sales last year and a 24 percent decrease in management earnings before interest, taxes, depreciation and amortization. The EBITDA decline elevated the company’s debt-to-EBITDA ratio to the above 6 from above 4 when Crestview Partners and Maybrook Capital Partners acquired the firm in late 2013.

The moves push NYDJ one notch deeper into speculative territory, with “Caa1” the highest rating in the group carrying “very high credit risk” and “B3” the lowest among those with “high credit risk.” “Ba” is the family with the highest standing within the non-investment or speculative group.

“Moody’s expects that despite some signs of stabilization in the denim category, continued inventory clearance may result in additional, albeit smaller, earnings declines over the next several quarters, and a possible covenant violation when the leverage and interest coverage covenants tighten in June 2015,” wrote Moody’s analyst Raya Sokolyanska.

Moody’s said estimated revenues last year were $166 million, down from about $200 million in 2013.

Moody’s noted NYDJ’s “significant customer concentration and reliance on the highly competitive women’s jean category, which has experienced declines as a result of the ath-leisure trend.” However, it also noted “NYDJ’s strong management team and still good EBITA margins.”

In addition to Bob Skinner, the company’s president and chief executive officer, former VF Corp. ceo Mackey McDonald serves as the company’s chairman.

Skinner commented, “We’ve seen an improvement in the denim market and NYDJ’s business is trending positively, buoyed by seasonal color and new silhouettes. We are encouraged by the consumer response to NYDJ’s newness,” which includes dresses, tops and its “athletic lounge” entry, NYDJ City/Sport.

“The NYDJ executive team, as well as our partners at Crestview and Maybrook, remain focused on our go-forward strategies and excited about our growth potential ahead,” Skinner concluded.