Brunswick Rail – Brunswick Rail Finance DAC Launches Consent Solicitation

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION
IN OR INTO THE UNITED STATES

Notice of Launch of Consent Solicitation

THIS NOTICE IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT ABOUT THE ACTION YOU SHOULD TAKE, YOU SHOULD CONSULT IMMEDIATELY YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER PROFESSIONAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000.

THIS NOTICE DOES NOT CONSTITUTE OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER FOR SALE, EXCHANGE OR SUBSCRIPTION OF, OR A SOLICITATION OF ANY OFFER TO BUY, EXCHANGE OR SUBSCRIBE FOR, ANY SECURITIES OF THE ISSUER OR ANY OTHER ENTITY.

BRUNSWICK RAIL FINANCE DESIGNATED ACTIVITY COMPANY

announces a consent solicitation and proposal to all holders (the “Noteholders”) of its outstanding U.S.$600,000,000 6.50 per cent. Guaranteed Notes due 2017 (the “Notes”)

Brunswick Rail Finance Designated Activity Company (the “Issuer”) announces today an invitation (the “Consent Solicitation”) to all holders of the Notes constituted by a trust deed dated 1 November 2012 between the Issuer and Citibank, N.A., London Branch as trustee (the “Trustee”), as supplemented by a supplemental trust deed dated 16 March 2016 (the “First Supplemental Trust Deed”) (the “Trust Deed”) to consent to amendments to Clause 1.1 (Definitions) of the Trust Deed and Condition 6 (Redemption and Purchase) of the terms and conditions of the Notes (the “Conditions” and each a “Condition”) set out in Schedule 3 (Terms and Conditions of the Notes) of the Trust Deed as described below (the “Amendment Proposals”) for approval by an extraordinary resolution (the “Extraordinary Resolution”) at a meeting of the Noteholders (the “Meeting”), all as further described in the Consent Solicitation Memorandum prepared by the Issuer dated 13 September 2017 (the “Consent Solicitation Memorandum”).

The Consent Solicitation and the Amendment Proposals are being made on the terms and subject to the conditions contained in the Consent Solicitation Memorandum. This announcement should be read in conjunction with the Consent Solicitation Memorandum. Capitalised terms used but not otherwise defined in this announcement have the meanings given to them in the Consent Solicitation Memorandum.

Noteholders may obtain a copy of the Consent Solicitation Memorandum from the Information and Tabulation Agent whose details appear below.

Details of the Notes

Background to the Amendment Proposals

In 2016, the Group announced that it was undertaking a strategic review of its capital structure in light of the continuing deterioration in the Parent’s operating environment due to a market-wide decline in lease rates and the impact of rouble devaluation which has caused many of the Parent’s clients to transition away from U.S. dollar based contracts. The review focused on the Group’s debt structure and was not intended to impact the Group’s employees, partners, customers, suppliers or trade creditors. The Parent also announced that it had engaged Houlihan Lokey (Europe) Limited as financial adviser.

Over the last several years the Russian railcar sector has experienced a series of shocks which have had an adverse impact. As a consequence, Russian rail traffic volumes have dramatically declined. Recently the operating performance in the gondola segment more than offset weakness in the specialised segments. Open gondola spot rent prices recovered as a result of rapid scrappage of railcars and a growth in freight turnover driven by relatively high commodity prices and export levels. However, the scrappage-driven growth of rent prices has come to an end. Market dynamics in the coming months and years will largely depend on the overall state of the Russian economy, its demand for cargo transportation and whether the current high level of production of gondolas continues. The industry environment in which the Group operates remains uncertain and next generation railcars pose a substitution threat to old generation fleets, like that of the Parent.

Since the Group’s peak operating performance in 2012, adjusted EBITDA has declined from U.S.$257 million to U.S.$86 million on an LTM basis up to 30 September 2015 and further to U.S.$82 million in 2016. During the period of 2012-2016, gondola daily spot rates decreased from U.S.$50 to less than U.S.$14 and the rouble exchange rate declined from 32.20 to 60.66 per U.S. dollar. As of 11 September 2017, the rouble to U.S. dollar exchange rate is 57.22 per U.S. dollar. The rouble’s devaluation has resulted in customers shifting contracts from U.S. dollars to roubles and by the end of 2017 the Group’s revenues will be 100 per cent. rouble denominated. This affects the Group’s position in relation to U.S. dollar denominated debt.

The Group has sought to mitigate the impact of these market trends by focusing on clients with high payment discipline and credit quality, optimising the fleet to maintain near 100 per cent. utilisation, and by cutting capital expenditures, overheads and direct costs. Further, the Group has replaced a sale and leaseback facility with Alfa-Leasing LLC with a new rouble sale and leaseback arrangement with Spets Trans Service (“STS”) for a total amount of RUB1.3 billion. Pursuant to this arrangement the Group has acquired additional railcars, financed through new leasing contracts with STS for a total amount of RUB3.7 billion and the use of cash on balance sheet for RUB1.3 billion. The STS transactions closed in August 2017.

The Group will continue to take proactive steps to improve operating performance. However, its long-term profitability is dependent on lease rates and exchange rates, both of which are prone to fluctuation.

In light of these factors, the Group believes that it is in the best interests of all stakeholders to address the current capital structure in a manner that reflects changes to the Group’s operating environment and business model and ensures that the Group will continue to be able to pay all its debts as they fall due in the future.

During the course of 2016, the Group made various announcements that it had engaged in substantive discussions with an ad-hoc group of Noteholders (the “Ad-Hoc Group”) and its advisors in connection with the Notes but a mutual agreement with the Ad-Hoc Group was not achieved at the time.

The Group continued to engage with the Ad-Hoc Group during the course of 2017 and in particular following the acquisition of the entire issued share capital of the Parent by the Shareholder in April 2017.

As a result of negotiations with the Ad-Hoc Group, the Group has agreed a proposal for the Shareholder to purchase all outstanding Notes for cash at U.S.$887.50 per U.S.$1,000 in principal amount of the Notes, which amount is deemed to include any accrued and unpaid interest, in full satisfaction of all outstanding amounts owed to the Noteholders under the Notes. This payment is to be funded by PJSC VTB Bank (“VTB”) and other monies available to Amalgam.

This proposal represents a significant improvement to the original proposal by the Group made in 2016 to the Ad-Hoc Group to purchase all outstanding Notes for cash at U.S.$440 per U.S.$1,000 in principal amount of the Notes.

The members of the Ad-Hoc Group, certain affiliates of VTB and certain other Noteholders (together representing 80.94 % of the outstanding nominal amount of the Notes), the Issuer, the Shareholder, the Parent, OOO Brunswick Rail and OOO Amalgam Rail Management (“Amalgam Russia”) have executed a lock-up agreement, pursuant to which, subject to certain terms and conditions, the members of the Ad-Hoc Group, certain affiliates of VTB and certain other Noteholders are bound to support the Extraordinary Resolution (the “Lock-Up Agreement”).

Throughout the negotiations the Group has continued to pay its debts as they fall due.

To reflect the work undertaken by the Ad-Hoc Group during the course of 2016 and 2017 in connection with the negotiations referenced above, members of the Ad-Hoc Group will share an additional work fee of U.S.$7.5 million.

As described in more detail in this document, the Issuer is conducting this Consent Solicitation to propose amendments to the Trust Deed and the Conditions, to include a purchase option which, if the Extraordinary Resolution is passed, would enable the Shareholder to purchase all of the outstanding Notes at U.S.$887.50 per U.S.$1,000 in principal amount of the Notes, which includes any accrued and unpaid interest to the Shareholder Purchase Option Settlement Date, in full satisfaction of all outstanding amounts owed to the Noteholders under the Notes (See “—Amendment Proposals”).

Having purchased all the outstanding Notes, the Shareholder will cancel the majority of the Notes and will propose and pass an Extraordinary Resolution amending the Notes inter alia by removing the November 2017 payment date and making the Notes repayable on demand.

The directors of the Issuer and the Parent consider that the purchase by the Shareholder of the Notes and the subsequent cancellation and amendment of the Notes to be put into effect by the Shareholder are in the best interests of the Issuer, the Parent and the Group and their respective stakeholders.

Summary of the Amendment Proposals

Noteholders are advised to review carefully the Consent Solicitation Memorandum for further background on the Amendment Proposals.

The Issuer is inviting Noteholders to approve by an Extraordinary Resolution the following modifications to the Trust Deed and the Conditions:

1. Addition of Purchase Option
   1. A new Condition 6.6A, following Condition 6.6 (Purchase) and before Condition 6.7 (Cancellation) shall be inserted as follows:
      
      “Shareholder Purchase Option
      
      6.6A    The Notes will be subject to the following provisions:
      
      1. The Shareholder may at any time give notice to the Issuer (the “Shareholder Purchase Option Exercise Notice”) and, upon receipt of such notice the Issuer shall promptly give notice to and instruct the Principal Paying Agent to give such notice to the Noteholders (“Issuer Notice”) in accordance with Condition 16 or, for so long as the Notes are in global form, in accordance with the provisions of the relevant Global Note (which notice shall be irrevocable) of the Shareholder’s intention to purchase all (but not some only) of the Notes outstanding at such time, on a date falling not later than three Business Days after the date of such notice (such date being the “Shareholder Purchase Option Settlement Date”). The delivery of the Shareholder Purchase Option Exercise Notice and the Issuer Notice shall under no circumstances result in any obligation of the Issuer or any of the Guarantors to purchase the Notes under this Shareholder Purchase Option.
      2. If the Shareholder Purchase Option Exercise Notice and the Issuer Notice are given, the Shareholder shall, on the Shareholder Purchase Option Settlement Date, mandatorily purchase all (but not some only) of the Notes that are then outstanding, at an amount equal to the Shareholder Purchase Option Price (in full satisfaction of all outstanding amounts owed to such Noteholders under the Notes).
      3. On the Shareholder Purchase Option Settlement Date, each Noteholder shall be entitled to payment by the Shareholder of an amount equal to the Shareholder Purchase Option Price (in full satisfaction of all outstanding amounts owed to such Noteholder under the Notes) for its Notes as of the Shareholder Purchase Option Settlement Date.
      4. The Issuer shall procure that the Principal Paying Agent notifies Euroclear, Clearstream, Luxembourg and DTC of the exercise of the Shareholder Purchase Option and that all Notes held through such clearing systems shall be automatically transferred to the Shareholder on the Shareholder Purchase Option Settlement Date against payment of the Shareholder Purchase Option Price by the Shareholder.
      5. Upon the receipt of the apportioned Shareholder Purchase Option Price, each Noteholder will be deemed to sell, assign and transfer to and upon the order of the Shareholder, all right, title and interest in and to, and any and all claims in respect of or arising or having arisen as a result of the Noteholder’s status as a holder of the Notes.
      6. With effect from their receipt of payment of the Shareholder Purchase Option Price, the Noteholders (other than the Shareholder and the persons deriving title through the Shareholder following a purchase of the Notes pursuant to this Condition 6.6A) shall have no further rights or claims to payments in respect of the Notes, whether under the Trust Deed, as supplemented, or otherwise, against the Issuer, the Trustee, the Paying Agents or any other person, notwithstanding that the Notes may remain outstanding after the Shareholder Purchase Option Settlement Date.

      For the purposes of this Condition 6.6A:
      
      “Shareholder” means Amalgam Rail Investments Limited;
      
      “Shareholder Purchase Option” means the Shareholder’s option to purchase all of the Notes as described in Condition 6.6A;
      
      “Shareholder Purchase Option Price” means U.S.$887.50 per U.S.$1,000 in principal amount of the Notes, which amount is deemed to include any accrued and unpaid interest to the Shareholder Purchase Option Settlement Date (inclusive); and
      
      “Shareholder Purchase Option Settlement Date” shall have the meaning given to it in Condition 6(A)(a).

   
   (B) Condition 6.7 (Cancellation) shall be modified by the insertion of the words underlined below:
   
   “All Notes redeemed or purchased pursuant to this Condition 6, except for any Notes purchased in accordance with Condition 6.6A, shall be cancelled forthwith and may not be held or resold. Any Notes so cancelled may not be reissued.”
2. Amendment of definition of “outstanding”
   

   The definition of “outstanding” under Clause 1.1 (Definitions) of the Trust Deed shall be modified by the insertion of the words underlined below:
   
   “outstanding means, in relation to the Notes, all the Notes issued except (a) those which have been redeemed in accordance with the Conditions, (b) those in respect of which the date for redemption in accordance with the Conditions has occurred and for which the redemption moneys (including all interest accrued on such Notes to the date for such redemption and any interest payable under the Conditions after such date) have been duly paid to the Trustee or to the Principal Paying Agent as provided in Clause 2 and the Agency Agreement and remain available for payment against presentation and surrender of the Notes in accordance with the Conditions, (c) those which have become void, (d) those which have been purchased and cancelled as provided in the Conditions, (e) those mutilated or defaced Notes which have been surrendered in exchange for replacement Notes, (f) (for the purpose only of determining how many Notes are outstanding and without prejudice to their status for any other purpose) those Definitive Notes alleged to have been lost, stolen or destroyed and in respect of which replacements have been issued pursuant to Condition 11, and (g) any Global Note to the extent that it shall have been exchanged for another Global Note or Definitive Notes pursuant to its provisions, provided that for the purposes of (1) ascertaining the right to attend and vote at any meeting of the Noteholders, (2) the determination of how many Notes are outstanding for the purposes of the Conditions and Schedule 4, (3) the exercise of any discretion, power or authority which the Trustee is required, expressly or impliedly, to exercise in or by reference to the interests of the Noteholders and (4) the certification (where relevant) by the Trustee as to whether a Default is in its opinion materially prejudicial to the interests of the Noteholders, those Notes which are beneficially held by or on behalf of the Issuer, any Guarantor or any of their respective Subsidiaries and not cancelled shall (unless no longer so held) be deemed not to remain outstanding; for the avoidance of doubt, Notes held by Amalgam Rail Investments Limited are not to be regarded as beneficially held by or on behalf of the Issuer, any Guarantor or any of their respective Subsidiaries and shall be deemed to remain outstanding at all times;”

   General
   
   Timetable
   
   The indicative timetable is summarised below:
   
   

   Event	Indicative Timetable
   Announcement of Consent Solicitation	13 September 2017.
   Record Date in respect of Notes held through DTC	5 p.m. (EST) on 3 October 2017.
   Expiration Time	10 a.m. (London time), 11 October 2017.  Latest time for: (1) Beneficial Owners of Notes held through Euroclear and/or Clearstream, Luxembourg (other than the Regulation S Registered Holder) to arrange for their accountholder in Euroclear and/or Clearstream, Luxembourg either to deliver their Voting Instruction or to request the Regulation S Registered Holder to deliver a Form of Proxy; and (2) DTC Participants to deliver a Form of Sub-Proxy Instruction (as applicable) in respect of the Extraordinary Resolution. Beneficial Owners must have made arrangements to vote with the relevant Clearing System by no later than 48 hours before the time fixed for the Meeting and within the relevant time limit specified by the relevant Clearing System.
   Meeting of Noteholders	10 a.m. (London time), 13 October 2017.
   Execution of Supplementary Trust Deed to give effect to the Amendments	13 October 2017, if the Extraordinary Resolution has been passed at the Meeting.
   Announcement of the results of the Meeting	13 October 2017
   Shareholder Purchase Option Exercise Notice	As soon as reasonably practicable following the Meeting, but no later than 19 October 2017.
   Shareholder Purchase Option Settlement Date	No later than three Business Days following the Shareholder Purchase Option Exercise Notice and in any event no later than 24 October 2017.

   
   

   The above dates and times are subject to the passing of the Extraordinary Resolution at the Meeting. Accordingly, the actual timetable may differ from the timetable above.
   
   Noteholders are advised to check with any bank, securities broker or other intermediary through which they hold their Notes when such intermediary would need to receive instructions from a Noteholder in order for such Noteholder to participate in, or (in the limited circumstances in which revocation is permitted) to validly revoke their instruction to participate in, the Consent Solicitation and/or the Meeting by the deadlines specified above. The deadlines set by any such intermediary and each Clearing System for the submission and (where permitted) revocation of Voting Instructions, Forms of Proxy Instruction, Forms of Proxy or Forms of Sub-Proxy Instruction (as applicable) will be earlier than the relevant deadlines set out above and specified in the Consent Solicitation Memorandum.
   
   Noteholders are directed to the Notice of Meeting which is available on the website of Brunswick Rail Limited at http://eng.brunswickrail.com/doc/investors/investor_news/2067/.
   
   Further details on the transactions can be obtained from, and requests for copies of the Consent Solicitation Memorandum and information in relation to the procedures for voting on the Extraordinary Resolution should be directed to, the Information and Tabulation Agent at:

   Lucid Issuer Services Limited
   
   Tankerton Works
   12 Argyle Walk
   London WC1H 8HA
   United Kingdom
   Email: brunswickrail@lucid-is.com
   Attention: Paul Kamminga
   
   Enquiries:

   Natalia Koroleva, PBN Hill+Knowlton Strategies
   Mobile (Russia): +7 (903) 795 6926
   Email: Natalia.Koroleva@hkstrategies.com
   
   This release must be read in conjunction with the Consent Solicitation Memorandum. All capitalised but undefined terms used in this announcement shall have the meaning given to them in the Consent Solicitation Memorandum.
   
   The distribution of the Consent Solicitation Memorandum and this release in certain jurisdictions may be restricted by law. Persons into whose possession the Consent Solicitation Memorandum comes are required by the Issuer, the Parent, the Guarantors, the Trustee and Lucid Issuer Services Limited as Information and Tabulation Agent (the “Information and Tabulation Agent”) to inform themselves about, and to observe, any such restrictions.
   
   In accordance with normal practice, the Trustee and the Information and Tabulation Agent express no views or opinion on the merits or otherwise of the Consent Solicitation, the Amendment Proposals or the Extraordinary Resolution. The Trustee has authorised it to be stated that it has no objections to the Extraordinary Resolution being submitted to Noteholders for their consideration. The Trustee has not been involved in negotiating or formulating the terms of the Consent Solicitation, the Amendment Proposals or the Extraordinary Resolution. Neither the Trustee nor the Information and Tabulation Agent make(s) any representation that all relevant information has been disclosed to the Noteholders in, or pursuant to, the Consent Solicitation Memorandum and/or the Notice of Meeting, nor do they accept any responsibility for the accuracy, completeness, validity or correctness of the statements made in the Consent Solicitation Memorandum, the Notice of Meeting or any other document prepared in connection with the Consent Solicitation or any omissions therefrom. The Noteholders should seek their own independent financial, legal and tax advice on the merits and on the consequences of the Consent Solicitation, the Amendment Proposals and the Extraordinary Resolution.
   
   This document does not constitute or form part of, and should not be construed as, an offer for sale or subscription of, or a solicitation of any offer to buy or exchange or subscribe for, any securities of the Issuer or any other entity. This document does not constitute a solicitation in any circumstances in which such solicitation is unlawful.
   
   BRUNSWICK RAIL FINANCE DESIGNATED ACTIVITY COMPANY is a designated activity company formed under the laws of Ireland with registered number 518323 whose registered office is at 2nd Floor, Palmerston House, Fenian Street, Dublin 2, Ireland.
   
   This release may contain “forward-looking statements” concerning the Issuer. Generally, the words “will”, “may”, “should”, “could”, “would”, “can”, “continue”, “opportunity”, “believes”, “expects”, “intends”, “anticipates”, “estimates” or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include statements relating to future capital expenditures and business and management strategies and the expansion and growth of the Issuer’s operations. Many of these risks and uncertainties relate to factors that are beyond the Issuer’s ability to control or estimate precisely and therefore undue reliance should not be placed on such statements which speak only as at the date of this release. The Issuer assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.
   
   These materials are not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”). Any securities mentioned herein have not been and will not be registered under the Securities Act, and no public offering will be made in the United States.