Fitch rates Avon loan BBB-

Fitch Ratings said it assigned a BBB- rating to Avon Products, Inc.'s new $500 million three-year term loan due in June 2015.

Fitch said it expects that much of the proceeds will be used to reduce commercial-paper balances totaling $754 million at March 31, 2012.

Avon Products has a long-term issuer default rating of BBB-, bank credit facility rating of BBB-, senior unsecured notes rating of BBB-, short-term issuer default rating of F3 and commercial-paper rating of F3.

Avon Capital Corp., which is guaranteed by Avon, has a short-term issuer default rating of F3 and commercial-paper rating of F3.

The outlook is stable.

The ratings reflect the continued trends in Avon's generation of negative free cash flow during the past two years and through the first quarter of 2012, Fitch said, as well as Avon's increase in leverage.

The ratings also consider the 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, the agency said.

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