Borr Drilling Ltd - Form 6-K Summary (Period Ended Sep 30, 2022)
Business Context and Reporting Period
This Form 6-K reports the Unaudited Interim Financial Results for Borr Drilling Limited for the nine months ended September 30, 2022. Borr is an offshore shallow-water drilling contractor specializing in jack-up rigs. The filing incorporates significant post-period refinancing activities and asset sales executed in October and November 2022 to address liquidity and debt maturity concerns.
Key Financial Metrics
| Metric ($ millions) | 9 Months 2022 | 9 Months 2021 |
|---|---|---|
| Total Operating Revenues | 295.2 | 176.2 |
| Operating Loss | (131.4) | (75.3) |
| Net Loss | (271.5) | (146.9) |
| Adjusted EBITDA | 102.3 | 13.0 |
| Cash and Cash Equivalents | 279.0 | 34.9 |
| Total Debt (Principal) | 1,870.0 | 1,862.5 |
| Net Cash Used in Operating Activities | (15.0) | (34.6) |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 68% to $295.2 million, driven by higher dayrate revenue ($87.1 million increase) due to more rigs in operation and increased related party revenue ($31.9 million increase) from bareboat charters to joint ventures.
- Impairment Charges: A significant non-cash impairment of $131.7 million was recorded, primarily related to advance payments and capitalized interest on newbuild rigs ("Tivar", "Huldra", "Heidrun") and the "Gyme" rig, following decisions to sell these assets.
- Financial Expenses: Net financial expenses rose 52% to $126.3 million, driven by higher interest rates, yard cost cover for undelivered newbuilds, and financing fees.
- Equity Method Investments: Income from equity method investments turned to a loss of $0.2 million, compared to $14.1 million income in 2021, largely due to the disposal of the Opex and Akal joint ventures in August 2021.
- Liquidity Position: Cash and cash equivalents surged to $279.0 million from $34.9 million, bolstered by a $274.9 million equity offering in August 2022 and ATM program sales.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: Management has concluded that substantial doubt exists regarding the Company's ability to continue as a going concern. This is due to significant historical losses, dependence on additional financing, and the need to refinance $350 million in convertible bonds maturing in May 2023.
- Refinancing Actions (Post-Period): In October 2022, the Company refinanced $1.52 billion of secured debt maturing in 2023, extending maturities to 2025. This included a new $150 million facility with DNB Bank ASA and amendments with Hayfin and PPL Shipyard.
- Asset Sales: The Company agreed to sell three newbuild rigs to a third party for $320 million and completed the sale of the "Gyme" rig for $120 million in November 2022. Proceeds were used to pay down debt and capitalized interest.
- Convertible Bond Covenant: The Company has undertaken to refinance its $350 million convertible bonds by the end of January 2023. Failure to do so could trigger an event of default under other credit facilities.
- Risks: Key risks include industry conditions, tendering activity, liquidity constraints, and the ability to secure accretive contracts for the rig fleet.
Investor Verification Checklist
- Convertible Bond Refinancing: Verify the status of the $350 million convertible bond refinancing required by January 2023 to avoid cross-defaults.
- Debt Maturity Profile: Confirm the final terms and covenants of the October 2022 refinancing agreements with DNB, Hayfin, and PPL, specifically regarding the extension to 2025.
- Asset Sale Closings: Monitor the closing of the three newbuild rig sales ($320 million) and the application of proceeds to debt reduction.
- Liquidity Runway: Assess whether the $279 million cash balance and operating cash flows are sufficient to cover capital expenditures and debt service without further dilution.
- Contract Backlog: Review the current contract backlog and day rates to ensure the fleet can generate sufficient cash flow to service the refinanced debt.