ACRA assigns BB+(RU) to Brunswick Rail Limited, outlook Stable

The credit rating of Brunswick Rail Limited (hereinafter, Brunswick Rail, or the Company) is based on moderate business profile assessment, satisfactory capital adequacy assessment, high risk profile assessment, and moderately weak funding and liquidity assessments.

Brunswick Rail is a specialized operating leasing company focused on the freight railcar lease. The Company has been working in this market for the last 16 years. As of March 31, 2020, the Company operated 40,000 railcars (around 3.5% of total railcars in operation in Russia). Brunswick Rail is the largest asset of BRG Holding Limited (Cyprus), which also controls transportation and management companies. Ilya Belyaev is the controlling shareholder of Brunswick Rail.

Key rating assessment factors

Moderate business profile assessment. Brunswick Rail is one of the leaders in the railcar operating leasing market: the Company accounts for around 20% of railcars that are in operating lease in Russia. Large industrial enterprises including companies in the coal and oil production industries are among the clients of the Company. Business profile assessment is being held back by elevated client concentration of the current lease portfolio (as of December 31, 2019, the share of the largest client was 50%, while top 10 clients accounted for 94% of the portfolio). Corporate governance and risk management quality is assessed as adequate.

Satisfactory assessment of capital adequacy. The Company has demonstrated a strong capital generation capacity in recent years: the averaged capital generation ratio (ACGR) totaled 1,406 bps. The capital adequacy ratio (CAR) equaled 15% in 2019. In accordance with the ACRA criteria and considering the decrease in capital after a loan was granted to the shareholders of BRG Holding Limited (Cyprus) in Q1 2020, ACRA assesses capital adequacy of Brunswick Rail as satisfactory.

The high risk profile assessment of the Company is based on the low level of debt in the lease portfolio regarded by ACRA as potentially problem debt (it was below 5% of the portfolio as of December 31, 2019 based on the analysis of all lessees of the Company). This assessment was made considering potential impact of the current economic environment on the financial standing of railcar lessees that are clients of the Company. Brunswick Rail has neither security investments nor non-core assets on its balance sheet.

Moderately weak funding and liquidity assessments are based on a satisfactory liquidity position of Brunswick Rail and low diversification of its funding profile. Loans raised from a single bank are the key funding source (80% of liabilities as of December 31, 2019). At the same time, the established and long lasting partnership with the bank allows the Company to raise required funding promptly if needed.

The satisfactory liquidity position is based on a moderately high forecast current liquidity ratio (FCLR) in the next 12 months of below 1.1 in the base case scenario of ACRA (considering the Company’s business model and existing contracts). ACRA also notes high concentration of emergency liquidity sources of the Company (should respective needs arise).

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;
  • CAR of at least 5% within the 12 to 18-month horizon;
  • Share of lease contracts with overdue payments at or below 5%. 

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • A substantial improvement in capital adequacy driven either through own capital generation or through capital injections by shareholders;
  • Improved lease portfolio diversification;
  • A substantial reduction of the share of the largest creditor in the resource base.

A negative rating action may be prompted by:

  • A substantial deterioration of the liquidity position;
  • Lower capital adequacy ratio;
  • Deterioration of the lease portfolio quality.

Rating components

SCA: bb+.

Adjustments: none.

Support: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating was assigned to Brunswick Rail Limited under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating was assigned to Brunswick Rail Limited for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The assigned credit ratings are based on the data provided by Brunswick Rail Limited, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of BRG Holding Limited (Cyprus) and statements of Brunswick Rail Limited composed in compliance with RAS. The credit rating is solicited, and Brunswick Rail Limited participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by Brunswick Rail Limited in its financial statements have been discovered.

ACRA provided no additional services to Brunswick Rail Limited. No conflicts of interest were discovered in the course of credit rating assignment.

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