Borr Drilling Limited — FY2020 Form 20-F Summary
Business context and reporting period
Borr Drilling is a Bermuda-incorporated offshore drilling contractor focused on shallow-water jack-up rigs, operating primarily in West Africa, Southeast Asia, Europe, Mexico and the Middle East. The filing is an annual Form 20-F for the fiscal year ended December 31, 2020, prepared under U.S. GAAP in U.S. dollars; it is not a quarterly filing. The Company owned 24 jack-up rigs at year-end, including 12 warm-stacked and one cold-stacked rig, and had five additional premium jack-up rigs under construction.
Financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total operating revenue | $307.5 million | $334.1 million |
| Dayrate revenue | $265.2 million | $327.6 million |
| Related-party revenue | $42.3 million | $6.5 million |
| Operating loss | $188.0 million | $150.8 million |
| Net loss | $317.6 million | $299.1 million |
| Adjusted EBITDA | $21.5 million | $(2.6) million |
| Net cash used in operating activities | $54.8 million | $89.0 million |
| Net cash used in investing activities | $119.7 million | $271.1 million |
| Net cash provided by financing activities | $65.2 million | $397.3 million |
| Cash and cash equivalents at year-end | $19.2 million | $59.1 million |
| Long-term debt, including current portion | $1,906.2 million | $1,709.8 million |
| Total equity | $1,036.8 million | $1,294.1 million |
| Total contract backlog, excluding Mexican operations | $132.1 million | $308.5 million |
Technical utilization was 99.5%, while economic utilization was 92.1%. Rig utilization was 48.3%, and the weighted average number of operating rigs was 12.8. The Company reported a total recordable incident frequency of 1.66.
At December 31, 2020, principal debt outstanding was $1,857.5 million, comprising $270.0 million under the Syndicated Facility, $30.0 million under the New Bridge Facility, $195.0 million under the Hayfin Facility, $1,012.5 million of shipyard delivery financing and $350.0 million of convertible bonds. Contractual obligations totaled $2,802.1 million, including $621.0 million of rig purchase obligations and $258.2 million of estimated interest obligations.
Material changes versus the prior comparable period
- Revenue declined 8.0% as COVID-19, lower oil prices and reduced customer spending caused fewer operating rigs and lower activity. Eleven rigs were operating at year-end versus 16 at December 31, 2019.
- Operating loss increased by $37.2 million, primarily due to $77.1 million of impairment charges, including $58.7 million related to the Atla and Balder rigs and $18.4 million related to MSS1.
- Net loss increased by $18.5 million despite improved equity-method investment income, which rose to $9.5 million from a $9.0 million loss in 2019.
- Adjusted EBITDA improved to positive $21.5 million, reflecting cost reductions and non-cash adjustments, but it does not represent cash available for debt service, capital expenditures or taxes.
- Operating cash use improved by $34.2 million, but total cash and restricted cash declined by $109.3 million during the year. Restricted cash of $69.4 million was used to settle forward contracts.
- The Company issued 108.0 million shares in 2020 for gross proceeds of $62.8 million, materially increasing shares outstanding and diluting existing holders.
- Six rigs were sold in 2020 for total proceeds of approximately $33.5 million and a gain on disposals of $19.0 million. The Balder sale closed in February 2021.
Outlook, liquidity, risks and unusual items
Management expects continued volatility in oil prices and offshore drilling demand. The filing states that COVID-19, OPEC-related supply actions, customer capital-spending reductions, crew-mobility restrictions and oversupply of jack-up rigs materially affected 2020 and may continue to pressure utilization and dayrates.
The financial statements include a substantial doubt regarding the Company’s ability to continue as a going concern. Management expected to require additional financing to fund future losses, capital commitments and potential cash shortfalls from delayed customer payments, particularly in Mexico. The Company stated that it did not expect to have sufficient cash to repay all debt at scheduled maturities without refinancing, asset sales or additional capital.
The Mexican joint ventures generated $42.3 million of related-party revenue for Borr in 2020 and contributed $9.5 million of equity-method income. However, PEMEX payment delays created liquidity pressure. Borr had $34.9 million due from the Mexican joint ventures at year-end, while the filing states that $58.3 million of PEMEX receivables were overdue and $172.0 million were unbilled on a 100% joint-venture basis.
Subsequent to year-end, Borr raised $46.0 million through a January 2021 equity offering and completed amendments with lenders and shipyards. These amendments generally extended bank and shipyard maturities to 2023, deferred certain interest and amortization payments, reduced selected liquidity and loan-to-value requirements, and postponed delivery of five Keppel newbuild rigs to dates between June and December 2023. The amendments also granted certain creditors purchase or cancellation rights over rigs and newbuild contracts under specified conditions. Management stated that additional financing and selective asset sales may still be required.
Other material items include a $90.9 million realized loss on Valaris forward contracts, $87.4 million of net interest expense, $16.2 million of income tax expense despite a pretax loss, and a continuing material weakness in internal control over financial reporting related to insufficient qualified accounting and financial-reporting personnel. Disclosure controls and procedures were deemed ineffective at December 31, 2020.
Most important facts for investors to verify
- Whether operating cash flow, rig utilization, dayrates and contract backlog improve sufficiently to support debt service and required capital expenditures.
- The availability and terms of refinancing for substantial 2022–2023 maturities, including the $350.0 million convertible bonds and shipyard financing.
- Compliance with amended minimum liquidity, book-equity and loan-to-value covenants, including the effect of any future rig impairments.
- The timing and collectability of PEMEX and Mexican joint-venture receivables, including the $34.9 million due directly from the joint ventures to Borr.
- The effect of the January 2021 equity issuance and any further equity financing on ownership dilution and share count.
- Whether Keppel delivery rights, creditor purchase options and the five deferred newbuild commitments result in additional cash requirements, cancellations or asset disposals.
- Management’s remediation of the material weakness in internal control over financial reporting and the effectiveness of related personnel and process improvements.