Dive Brief:

• Citing apparel retailer Charlotte Russe's "very weak" operating results through the third quarter, financial agency S&P Global on Monday lowered both the retailer's issuer credit rating and its issue-level rating on its term loan facility both to CCC- from CCC, leaving its "3" recovery rating unchanged.

• "The negative outlook reflects our expectation that continued weak performance and constrained liquidity could lead Charlotte Russe to restructure its debt in some form in the next six months," the firm said in a note emailed to Retail Dive.

• Last week the retailer also remained on Fitch's 'Top Loans of Concern' list, which indicates a significant risk of default. Fitch's list includes debt that has deeply speculative-grade ratings, and "adverse market information or events and insight from sector analysts are also factors," according to a note emailed to Retail Dive.

Dive Insight:

The writing on the wall for the teen retailer was first etched last week when sources told the Wall Street Journal that a restructuring, and even bankruptcy, is likely for Charlotte Russe. That came barely a year after the privately held retailer struck a deal with lenders to help keep it afloat, which led S&P in February to grant an upgrade.

As a mall-based, teen apparel retailer owned by private equity, Charlotte Russe fits the mold of many struggling retailers, loaded with debt and thereby without much means to turn around. In 2009, at the time of the $380 million take-private buyout by Advent International, Charlotte Russe operated 500 stores and was already facing stiff competition, particularly from fast-fashion retailers like Forever 21 and H&M. Its struggles are now long-lived: Fitch in 2016 listed the company's debt on its "Bonds of Concern" list, and Retail Dive flagged it as a retailer that could go bankrupt in 2017. 

That increasingly seems more likely, with little wiggle room for the apparel retailer to maneuver out of its difficulties. In its note on Monday, S&P dutifully noted that it "could raise our ratings on Charlotte Russe if we believe that the company's operating performance will improve significantly, enabling it to adequately fund its business operations and financing expenses on a sustained basis," but also called that "unlikely over the next year." There would also need to be evidence that the company's "supply-chain disruptions will be minimal," the firm also said.

Perhaps more likely is a further downgrade, "if the company announces a distressed exchange or restructuring, or if we believe that a default is inevitable," S&P said.