Fitch affirms Avon

Fitch Ratings said it removed Avon Products, Inc. and Avon Capital Corp. ratings from Rating Watch negative.

The agency also said it affirmed Avon Products' long-term issuer default rating at BBB-, bank credit facility at BBB-, senior unsecured notes at BBB-, short-term issuer default rating at F3 and commercial-paper rating at F3.

Fitch also affirmed Avon Capital's short-term issuer default rating at F3 and commercial-paper rating at F3.

The outlook is stable.

The affirmations resolve the Rating Watch negative placed on both companies in May following Coty, Inc.'s preliminary, non-binding offer to acquire Avon's outstanding shares for $24.75 per share or about $10.7 billion, Fitch said.

The ratings reflect the continued trends in Avon's generation of negative free cash flow, cash flow from operations minus capital expenditures and dividends during the past two years and through the first quarter of 2012, as well as Avon's increase in leverage to 2.7X for the last 12 months ended March 31, 2012, the agency said.

The ratings also encompass operational and business model challenges to improve service levels in Brazil, manage price gaps in several categories, address working capital issues and increase representative compensation to stem volume and market-share declines given heightened levels of competition, Fitch said.

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