Brunswick II

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26131
Company name	Brunswick Capital
Country	Russian Federation
Sector	Transportation and Warehousing
Environmental category	FI
Department	Infrastructure
Status	Active

Date SPI disclosed	June 29, 2007
Projected board date	August 23, 2007
Previous Events	Invested: November 13, 2007 Signed: August 20, 2007 Approved: August 2, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Brunswick Rail Leasing (BRL or the company) is a Russian registered company formed in 2003 to provide railcars to customers in Russia and neighboring broad-gauge countries. BRL acquires railcars and leases them to large industrial and transport companies under long-term operating and financial lease contracts. BRL’s total fleet is around 7,000 cars and its plan is to add approximately 5,000 railcars to its fleet over the next 12 months. The company intends to borrow up to $385 million from IFC and other lenders to finance its fleet expansion and refinance existing debt.

Once the new loan is drawn down, the company plans, subject to the outcome of a feasibility study to be undertaken in July-August, to transfer the assets (i.e. lease receivables and railcars) to a Special Purchase Vehicle (SPV), which would sell rated bonds into the market place. The proceeds from this securitization would be used to repay the company’s debts.

Anticipated development impact of the project

The new financing facility would be the first securitization undertaken for a private Russian rail company. As one of Russia’s more experienced rail sector lenders and as an existing lender to the company, IFC is well positioned to add value to the transaction. Further, IFC will be playing a crucial role in broadening the pool of potential investors in securities issued by the SPV by providing a credit enhancement in the securitization. By supporting an innovative transaction, IFC will be improving the competitiveness of the sector, promoting transparency, and promoting best practices.

The development impact of the new loan facility and securitization will include:

- support of private sector investment in Russia’s rail sector,
- increase in the size and competitiveness of Russia’s fleet of rolling stock,
- creation of instruments for long-term saving and investment for investors such as pension funds and life insurance companies,
- increased transparency and disclosure by financial institutions required in capital markets transactions that will ultimately strengthen corporate governance in these entities, and
- promote the use of capital markets by Russian entities

IFC's expected development contribution

Because this is an innovative financial structure, IFC’s participation will provide the company with a much greater chance of success. Among the impediments to a successful securitization is the lack of enforceability of rail lease contracts in Russia. A strictly contract-based approach to the securitization, while easier for investors to analyze, would be unlikely to yield positive results. A market-based approach, with a firm understanding of the risks and limitations of lease contracts is necessary and IFC has experience and perspective in investing in Russia’s rail industry. IFC will be able to advise the banking consortium about the proper structure and terms at the outset, to better enable a successful securitization and to advise the company about its future leasing operations (as we have over the past year) to make the securitization possible. Most importantly, IFC’s successful track record in investing in Russian rail companies and in undertaking securitizations will provide the company with credibility in its deals with ratings agencies and investors.

Environmental and social issues - Category FI

This project involves IFC support for BRL’s railway freight wagon leasing business, and is a Category FI project according to IFC’s Environmental and Social Review Procedure.

The company’s freight wagons comply with all Russian safety and environmental standards, including the Russian Railways (RZhD) design and construction specifications. Through its internal quality control procedures, BRL’s engineering staff and quality inspectors ensure wagons are constructed by various manufacturers to meet these standards. BRL inspectors also monitor manufacturing facility environmental compliance as part of their wagon quality inspections.

BRL leases its wagons to operators which transport primarily mineral products, manufactured goods, containers, or new automobiles. Some fertilizer and phosphate products are transported. Wagons are maintained by operators at RZhD workshops that comply with relevant environmental requirements for pollution control and occupational safety and health.

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