Fitch rates Avon's $1.5 billion Unsecured Notes

Global rating agency Fitch has assigned a 'BB+ ' rating to Avon Products, Inc.'s (Avon) $1.5 billion senior unsecured notes issuance with the following tranches:

Avon intends to use the net proceeds, together with cash on hand, to refinance upcoming maturities and for general corporate purposes. Today's action is in alignment with management's goal of addressing the company's capital structure.

The new notes contain a Change of Control Repurchase Event provision and interest step-up language.

Upon the occurrence of both a Change of Control and rating downgrades below investment grade by two of the three rating agencies, unless Avon exercises its right to redeem the notes, the company will be required to make an offer to purchase the notes at a price equal to 101% of the aggregate principal amount plus accrued and unpaid interest. The note indenture contains limitations on liens and sale-leasebacks but does not contain financial covenants. Interest could be increased by a maximum of 200 basis points in addition to the stated rate at issuance based on the company's ratings.

Fitch notes that Avon's $550 million three-year term loan requires that if the company raises at least $500 million in new debt, 50% of the net proceeds must be applied towards this facility. With $1.5 billion in gross proceeds Avon should be able to refinance the $600 million in privately placed notes including the $65 million make-whole and the $125 million 4.625% note due May 13, 2013 while still applying at least $500 million in required net issuance proceeds to its $550 million term loan due in 2015.