OREANDA-NEWS. June 27, 2016. Over the last several months, Brunswick Rail Limited (the "Company") has engaged in substantive discussions with an ad-hoc group of noteholders (the "Group") and its advisors in connection with Brunswick Rail Finance Limited's US\\$600,000,000 6.50 per cent. Guaranteed Notes due 2017 (the "Notes").

As part of those discussions, the Company made an initial all-cash buyback proposal to the Group for RUB 17.430 billion, which at the current USD/RUB exchange rate amounts to approximately US\\$ 440 per US\\$ 1000 principal amount of Notes. The Company subsequently expanded the proposal to include two further alternatives, at the election of the participating noteholders: (i) reinstated RUB-denominated debt which would rank pari passu with a RUB-denominated financing from a Russian financial institution to support the cash settlement of US\\$ 440 per US\\$ 1000 principal amount of Notes; and (ii) settlement-in-kind ("SIK"). The SIK option entailed a pro-rata transfer to the noteholders of the Company's fleet of railcars. Railcars settled in accordance with the SIK option would have been transferred to an SPV owned and controlled by noteholders whereby the railcars held by the SPV would be managed by the Company under a management agreement and subject to the payment to the Company of a management fee of 9% of the SPV's revenues. The Company was also seeking to use the SIK structure, combined with the RUB-denominated financing, to purchase additional railcars which would be owned by the Company through the existing structure and which would provide security for the Company's RUB-denominated debt. In connection with each of these options, the Company's shareholders proposed to provide US\\$ 15 million in new equity investment ("New Money"). The participants in the SIK alternative were also offered to invest pro-rata US\\$ 5 million alongside New Money for up to 25% of the Company's ordinary equity. The Group rejected those proposals.

On 8 June 2016, the Group made a counterproposal of (a) a cash tender for Notes at US\\$ 550-600 per US\\$ 1000 principal amount of Notes, funded by a US\\$ 165 million equivalent secured first-lien RUB-denominated facility, and (b) a pro-rata share of a secured first-lien US\\$-denominated facility ranking pari passu with the first-lien RUB-denominated facility equivalent to US\\$ 450 on every US\\$ 1000 of non-tendered Notes, US\\$ 550 on every US\\$ 1000 of non-tendered Notes in a reinstated subordinated convertible bond with 6% interest for the first two years and 10% interest thereafter (the "PIK Notes") and a pro-rata share of 49% of the Company's ordinary equity. The existing shareholders would also contribute US\\$ 15 million of New Money which would rank pari passu with the PIK Notes, and be entitled to 7% of the percentage recovery on the PIK Notes, as well as retain 51% of the Company's ordinary equity.

On 10 June 2016, the Company rejected the Group's counterproposal and presented a further proposal.  That proposal offered noteholders the ability to select from two options: (a) an all-cash exit from the Notes, which required at least 75% of noteholders to tender their Notes for a  payment totalling RUB 13.97736 billion, equivalent to US\\$ 480  per US\\$ 1000 principal amount of Notes; and (b) an alternative exchange option available to up to 25% of the noteholders comprising (i) a RUB-denominated cash payment totalling up to RUB 3.39728 billion, equivalent to US\\$ 350 per US\\$ 1000 principal amount of Notes, (ii) PIK Notes in the amount of up to RUB 3.39728 billion, equivalent to up to US\\$ 52.5 million, and (c) the opportunity to acquire warrants exercisable into 25% of the Company's enlarged equity. In this paragraph, US\\$-equivalents of RUB-denominated sums were converted at a RUB/US\\$ rate of 64.71.

On 22 June 2016, the Group rejected the Company's proposal of 10 June 2016 and presented a further proposal.  That proposal was structurally similar to the 8 June 2016 proposal, save that it would increase the entitlement of shareholders contributing the US\\$ 15 million of New Money to recoveries under the PIK Notes from 7% of the percentage recovery on the PIK Notes to 15% of the value of the PIK Notes, and reduce the rate of interest in kind payable on the PIK Notes from 6% for two years and 10% thereafter to 3% over the life of the subordinated debt.  On 22 June, the Company rejected this proposal. While the Company has determined to update the market at this juncture, that does not preclude discussions from continuing.

The cash component of the Company's proposed transactions described above was intended to be financed through a secured facility from PJSC VTB Bank to OOO Brunswick Rail (the "Borrower") in the amount of up to RUB 20 billion. The terms of the facility contemplate a 6.5% per annum margin over the current Central Bank of Russia key rate and a five-year maturity from the date on which the agreement enters force. The facility would be guaranteed by the Borrower, OOO Proftrans, Brunswick Rail Holding Ltd (Cyprus) and the Company, and secured by substantially all of the unencumbered assets of the Borrower and OOO Proftrans. The secured facility has a number of conditions precedent, including the provision of US\\$ 15 million of New Money by the Company's shareholders (as described above), and is linked to active participation by the Company's founding partners. The secured facility also requires that the Company repay the two sale-and-leaseback facilities (totalling approximately RUB 3.529 billion, or US\\$ 54.5 million at current exchange rates) it entered into in January 2016 with Alfa Leasing LLC.

A consensual transaction remains the Company's preferred outcome, and on that basis, it intends to continue to engage with noteholders in order to achieve a solution to its capital structure.

In light of the present inability to reach a consensual transaction, the Company has received a letter formally advising it that a committee of shareholders (the "Committee"), comprising six parties and representing approximately 48% of outstanding shares, has been formed. The Committee has retained legal advisors and has been formed to seek to protect and maximise the value of their respective equity stakes in the Company and to explore all possible options to achieve this, including a sale of some or all of the equity in the Company. The Committee has also commenced the process of appointing a financial advisor. It is possible that that process will result in a sale of all of the shares in the Company.

About Brunswick Rail:

Brunswick Rail is a private railcar operating lessor providing freight railcars to large corporate clients in Russia. Established in 2004, Brunswick Rail currently owns a fleet of ca. 25.8 thousand railcars (as of 31 December 2015), which represents approximately 2% of the total Russian railcar fleet.