The recent revival in shares of Toys R Us ( TOY) suffered another setback Wednesday when Moody's cut the chain's debt rating to below investment grade. The agency cited the company's inability to compete with discounters such as Wal-Mart ( WMT) and Target ( TGT). Moody's cut Toys R Us two notches to Ba2 from Baa3 and dropped its commercial paper rating to not prime, while maintaining a negative outlook on the debt. The move followed a similar action by Standard & Poor's, which on March 10 lowered the company's debt to BB. At both agencies, Toys R Us is now rated two notches below investment grade. The shares, which hit $16.92 on March 4 after starting the year at $12.64, were recently down 32 cents, or 2.05%, to $15.26 Wednesday afternoon. In explaining its cut, Moody's said the retail chain continues to struggle against low-cost competitors. "The downgrade results from continued subpar performance of the U.S. toy division, driven to a major extent by increasing competition from discounters such as Wal-Mart and Target, especially during the all-important Christmas holiday season," Moody's wrote. "The success of the discounters during the 2003 holiday period increases the pressure on Toys to reduce its reliance on this relatively short selling season, which it has to a large extent failed to accomplish."