Moody’s Investors Service has downgraded the Ascena Retail Group, indicating that the retailer’s capital structure is “likely unsustainable as a result of its weak operating performance, high leverage and negative free cash flow.”

Moody’s also said Ascena, which operates Ann Taylor, Loft, Lane Bryant, Cacique, Justice, Catherines and Lou & Grey, has “an elevated risk of a debt restructuring including a material debt repurchase at a significant discount.” Ascena also operates Dressbarn which is being liquidated.

The rating agency lowered Ascena’s corporate family rating (CFA) to Caa2, reflecting the company’s elevated probability of debt restructuring, from B3, and its probability of default rating (PDR) to Caa2-PD from B3-PD. It’s senior secured term loan rating fell to Caa2 from B3.

Ascena has a $1.8 billion ($1.37 billion outstanding) senior secured first lien term loan B due 2022.

Moody’s criticized the company for “persistent execution missteps” and noted the challenges of offsetting competitive pressure and the cost of omnichannel transition for a portfolio of primarily mature, mid-priced brands.

Moody’s also cited “good potential for meaningful EBITDA improvement in the fiscal year ending July 2020 because the company will anniversary significantly elevated premium and kids clearance activity. The premium division includes Ann Taylor, Loft and Lou & Grey, while kids includes Justice.

“Ascena needs to achieve a significantly higher level of earnings on a sustained basis in order to support its current debt structure and a refinancing at par with higher interest rates,” Moody’s said.

In its fiscal fourth quarter ended Aug. 3, Ascena posted a fourth-quarter net loss of $358 million, compared with a profit of $33.2 million a year ago. Comparable sales were flat, though better than expected, and total sales were $1.45 billion compared to $1.52 billion in the year-ago period.

The company said it exceeded its expectations for adjusted operating earnings, which came in at $16 million.

The retailer also said it completed the divestiture of the Maurices chain; that Dressbarn should have all of its stores closed by Dec. 31, and that inventory levels have been normalized and are positioned well for holiday. Ascena said its cash and revolver availability of $725 million at the end of the fiscal year was compliant with all covenants, providing liquidity.

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