In a statement Tuesday, Fitch says the company's performance has resulted in worsening credit metrics and negative cash flow generation in an already challenging and competitive market. "As a result, the company is dependent on favorable business and market conditions to meet its financial commitments as it carries out the lengthy process of repositioning the business," said Fitch in the statement. However, the rating firm acknowledged that Linens 'n Things has near-term liquidity available to meet the company's capital and debt service requirements, and has strong brand recognition as the number two home furnishings retailer. "The company's sustainability is dependent on favorable business and market conditions, which Fitch views as a concern in light of the soft demand for home furnishings as well as the lengthy process of the company's turnaround," Fitch said in the statement.

A Fitch spokesperson could not be reached, and a spokesperson for the retailer did not return calls for comment. In Linens 'n Things second quarter report on Aug. 14, the company said it had total net sales of $593.6 million for the quarter, a 2.9% decrease from the same quarter in 2006, and a comparable store sales decline of 7.3%, partially offset by the opening of new stores. The company also reported a net loss for Q2 of $42 million, compared with a net loss of $39.1 million in the second quarter 2006.

Though the company opened seven new stores in the second quarter, firm officials said earlier this year that the company has to slow its opening new buildings and concentrate on the basics. "As we have previously discussed, our goal is to continue to improve upon our merchandising, marketing and store-line execution," said Robert DiNicola, chairman and CEO, in the second quarter report.