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Rating Action:

Moody's rates Avon's $1.5 billion notes offering Baa2 with stable outlook

Global Credit Research - 08 Mar 2013

New York, March 08, 2013 -- Moody's Investors Service today assigned a Baa2 rating to Avon Products, Inc.'s ("Avon") senior unsecured notes issues totaling $1.5 billion. The outlook is stable.

Ratings assigned to Avon Products, Inc. include the following:

$250 million 2 3/8% notes due 2016 at Baa2;

$500 million 4.6% notes due 2020 at Baa2;

$500 million 5.0% notes due 2023 at Baa2; and

$250 million 6.95% Notes due 2043 at Baa2.

Rating Rationale:

Avon's Baa2 senior unsecured rating reflects its position as the world's largest direct selling company, its strong brand recognition, and broad geographic diversification, especially in higher growth developing markets. Avon's ratings are constrained by its modest free cash flow due to elevated capital spending requirements and high working capital needs as well as the recent volatility in active representative and organic revenue growth trends. Improving profitability is further challenged by the highly competitive nature of the global beauty and personal care category which has required Avon to sustain high levels of brand advertising and representative investments. Moody's notes that Avon remains at a competitive advantage in key emerging markets as the leader in the direct selling channel and its emphasis on low-priced beauty and fashion and home products. The ratings also reflect the risks inherent in a direct selling model, even when this business model is well-managed. Avon Capital's Prime-2 short-term rating reflects its excellent liquidity profile supported by sizable offshore cash holdings.

The stable outlook reflects Moody's expectation for improvement in Avon's operating performance over the next 12-18 months, but still reflecting a Baa2 credit profile. Specifically, profitability, free cash flow and leverage should improve driven by better productivity in key international growth markets and more disciplined working capital management. Over the next 12 to 18 months, Moody's expects steady recovery in operating and financial performance including organic growth of low-to-mid single digits, debt-to-EBITDA approaching 3.0 times and EBIT-to-interest coverage to remain comfortably above 4.5 times despite higher interest costs (including Moody's standard analytic adjustments).

A ratings upgrade would require Avon to demonstrate that its turnaround initiatives are successful, that certain operational and execution related problems have been addressed, and that growth in active representatives and organic sales are restored to mid-single digit levels. Accordingly, Avon's credit metrics would need to improve such that EBIT margins approach double digit, retained cash flow-to-net debt is sustained above 30% and EBIT-to-interest expense is sustained above 5.0 times.

Avon's ratings could be downgraded if the company fails to sustain its current profitability and margins or if credit metrics deteriorate such that retained cash flow-to-net debt is sustained below 20% or EBIT-to-interest expense is sustained below 4.0 times.

Avon Products, Inc., based in New York City, is the world's leading direct seller of beauty-related products and fashion jewelry with a worldwide independent direct sales force of approximately 6.4 million independent representatives. The company's product categories include Beauty, comprised of cosmetics, fragrances, skin care, and toiletries; Beauty Plus, comprised of jewelry, watches, apparel, and accessories; and Beyond Beauty, comprised of home, gift, and decorative products. Avon's revenues during the fiscal year ended December 31, 2012 were approximately $11 billion.

The principal methodology used in this rating was Global Packaged Goods published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Janice Hofferber, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Avon's $1.5 billion notes offering Baa2 with stable outlook
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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