Avon Facing Downgrade Regardless of Coty Bid: Corporate Finance

Avon Products Inc. is probably due for a ratings cut whether or not it’s bought by Coty Inc., complicating efforts by the world’s largest door-to-door cosmetics seller to restore profitability and stay independent.

Even before Avon turned down a $10 billion bid from Coty, the maker of perfumes by Heidi Klum and Beyoncé Knowles, credit-default swap traders were treating the company as junk, according to Moody’s Corp.’s capital markets research group. Swaps linked to the target’s debt jumped more than 10 percent after the Coty offer was made public on April 2. Moody’s Investors Service rates Avon A3, while Standard & Poor’s has it two levels lower at BBB. Both maintain “negative” outlooks.