Dive Brief:

• S&P Global has upgraded Charlotte Russe's debt following the completion of what analysts deemed a "distressed exchange" on a $214 million loan, according to a press release from the ratings agency emailed to Retail Dive.
• The exchange created a new $90 million term loan and gave existing lenders a majority stake in the teen apparel retailer — an agreement initially announced in December — according to S&P.
• The move reduced Charlotte Russe's debt load, but S&P analysts said in a release that they expect "liquidity to be tight" over the next year because of the retailer's "need to improve operating performance and free cash flow prospects." Analysts issued a negative outlook for the company on their expectations that, "operating trends will remain weak over the next 12 months given continued intense competition in the specialty apparel space and lower store traffic resulting in moderate cash burn over that time period."

Dive Insight:

Charlotte Russe's debt restructuring move has bought it time, but, like J. Crew and others that have pulled off similar exchanges, the retailer remains in a fairly precarious financial position.

The S&P upgrade reflects Charlotte Russe's healthier balance sheet and capital structure after the debt exchange, leaving the retailer with a "much more manageable interest burden and [debt] maturity schedule," the analysts said.

But the agency still holds a dim outlook on the retailer's prospects, given "intense competition in the specialty apparel space, lower store traffic, and our expectation for some disruption in supply chain related to the uncertainty around the recent financial restructuring," the analysts said.

They added that they could downgrade Charlotte Russe again if it can't generate cash from operations and instead has to draw funds from its loan facility. Conversely, S&P said it might upgrade the retailer if it can stabilize comparable sales in the low single digits and expand its profit margins.

In 2009, at the time of the $380 million take-private buyout by Advent International, Charlotte Russe operated 500 stores and was already facing, in the words of The Wall Street Journal, a "very competitive market in a treacherous retail environment" for niche retail that was filling up with fast-fashion sellers like Forever 21 and H&M. Last year saw multiple downgrades and gloomy analyst reports for the retailer as the specialty apparel sector was decimated by sales declines and bankruptcies.

Moody's Investors Service and others previously placed Charlotte Russe on default and bankruptcy watch lists.