Fitch downgrades Avon

Fitch Ratings said it downgraded the long-term ratings on Avon Products, Inc.'s long-term issuer default rating to BBB- from BBB, bank credit facility to BBB- from BBB and senior unsecured notes to BBB- from BBB.

Fitch also said it downgraded the short-term issuer default rating and commercial-paper ratings for Avon and Avon Capital Corp. to F3 from F2.

Avon Capital's commercial paper is fully guaranteed by Avon Products.

The outlook is stable.

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

The downgrade also encompasses operational and business model challenges to improve service levels in Brazil, manage price gaps in several categories and address working capital issues, the agency said.

Fitch said it expects that these factors increase the probability that margins could be materially lower than 2011, leverage will increase to the 3x range and free cash flow is likely to remain negative with lower profitability in 2012.

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