The cost of protecting debt issued by Avon Products Inc. against a potential default is at a record high, on concerns about liquidity, revenue, margins and cash flow, Fitch Solutions said Thursday. Five-year credit-default swaps written on Avon debt have widened by 22% in the last month to a record 1,109 basis points, said Fitch. Swaps have widened as much as 130% since the beginning of the year. "Avon liquidity has tightened but remains adequate in the near term," said Fitch. The company has said free cash flow will be below the $100 million guidance it provided five months ago, and cash balances have shrunk by more than $370 million since year-end 2014. "Additionally, as the company evaluates the foreign exchange (F/X) impact on cash and cash flow into 2016, the $100 million or so in dividends could be in jeopardy," said Fitch. "While a dividend cut would be positive for creditors, it is also a signal of increased pressure on liquidity." Fitch downgraded Avon's rating to B+ from BB- on Nov. 5, placing it four notches below investment grade. The outlook is negative, which means it could downgrade the rating again in the medium term.
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