Business Context and Reporting Period
Company: Borr Drilling Ltd (Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2023
Business Overview: Offshore shallow-water drilling contractor operating a fleet of 22 premium jack-up rigs (plus two under construction). The company provides drilling services to the oil and gas industry globally.
Key Financial Metrics
| Metric ($ millions) | Q1 2023 | Q1 2022 |
|---|---|---|
| Total Operating Revenues | 172.0 | 82.0 |
| Operating Income | 46.0 | (12.3) |
| Net Loss | (7.4) | (51.3) |
| Adjusted EBITDA | 72.4 | 21.4 |
| Cash & Cash Equivalents | 90.3 | 46.0 (Q1 2022 end) |
| Restricted Cash | 168.4 | 12.3 (Q1 2022 end) |
| Total Debt (Principal) | 1,769.0 | N/A |
| Net Cash Used in Operating Activities | (8.2) | (14.7) |
Material Changes vs. Prior Period
- Revenue Surge: Total operating revenues increased 110% to $172.0 million, driven by a $78.4 million increase in dayrate revenue. This was attributable to more rigs in operation ($54.8M), more operating days ($13.2M), and higher average dayrates ($10.1M).
- Profitability Improvement: The company swung from an operating loss of $12.3 million in Q1 2022 to an operating income of $46.0 million in Q1 2023. Net loss narrowed significantly by 86% to $7.4 million.
- Expense Increases: Rig operating and maintenance expenses rose 54% to $85.5 million due to higher utilization. Financial expenses increased 15% to $40.5 million, primarily due to higher interest costs.
- Adjusted EBITDA: Increased 238% to $72.4 million, reflecting improved operational leverage despite higher tax and financial expenses.
Guidance, Outlook, Risks, and Unusual Items
Recent Financing and Liquidity Actions
- Bond Issuance: In February 2023, the company raised $400 million total: $250 million in unsecured convertible bonds (due 2028, 5.0% coupon) and $150 million in senior secured bonds (due 2026, 9.5% coupon).
- Debt Refinancing: Proceeds were used to repay $350 million of convertible bonds due in May 2023. The remaining $151.2 million of this debt was repaid in May 2023 using escrowed funds.
- Facility Amendment: In April 2023, the DNB Bank facility was increased from $150 million to $175 million; the additional $25 million was drawn for general corporate purposes.
Going Concern Warning
Management has concluded that a substantial doubt exists over the company's ability to continue as a going concern. This is due to significant historical losses, dependence on additional financing to meet capital expenditure commitments, and the need to secure profitable contracts to service debt obligations maturing in the next 12 months.
Risks and Contingencies
- Debt Maturities: As of March 31, 2023, $236.2 million of debt was scheduled to mature in 2023 (largely the convertible bonds subsequently repaid).
- Commitments: The company has $294.8 million in delivery installment commitments for two newbuild rigs scheduled for delivery in 2025.
- Market Risks: Exposure to industry conditions, tendering activity, and potential delays in payments from joint ventures.
Investor Verification Checklist
- Going Concern Status: Verify the company's ability to secure profitable contracts and additional financing to meet 2023-2024 debt obligations.
- Debt Repayment Execution: Confirm the successful repayment of the $151.2 million convertible bond tranche in May 2023 and the release of associated restricted cash.
- Utilization Rates: Monitor the sustainability of the increased dayrate revenue and rig utilization rates driving the Q1 2023 turnaround.
- Newbuild Commitments: Assess the funding strategy for the $294.8 million remaining installments on rigs due in 2025.
- Share Lending Agreement: Review the impact of the $12.4 million deferred finance charge associated with the share lending framework for convertible bond hedging.