Borr Drilling Ltd - Q1 2022 Financial Summary
Business Context and Reporting Period
This Form 6-K filing presents the Unaudited Interim Financial Report for Borr Drilling Limited for the three months ended March 31, 2022. Borr is an offshore shallow-water drilling contractor specializing in jack-up rigs. The report highlights a significant increase in operating revenues driven by higher rig utilization and related party revenue, though the company continues to report a net loss and faces substantial liquidity challenges regarding debt maturities.
Key Financial Metrics
| Metric ($ millions) | Q1 2022 | Q1 2021 |
|---|---|---|
| Total Operating Revenues | 82.0 | 48.4 |
| Operating Loss | (12.3) | (40.6) |
| Net Loss | (51.3) | (54.4) |
| Adjusted EBITDA | 21.4 | (10.7) |
| Cash and Cash Equivalents | 50.1 | 19.2 (Beginning Q1 2021) |
| Total Debt (Short + Long Term) | 1,920.3 | N/A |
| Net Cash Used in Operating Activities | (14.7) | (16.7) |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 69% ($33.6 million) to $82.0 million. This was driven by a $15.9 million increase in dayrate revenue due to more rigs in operation and a $17.7 million surge in related party revenue from bareboat charters to joint ventures.
- Net Loss Improvement: Net loss decreased by 6% to $51.3 million. The improvement was primarily due to higher revenues and a reduction in General and Administrative (G&A) expenses ($2.5 million decrease), which were inflated in the prior year by debt amendment costs.
- Equity Income Decline: Income from equity method investments dropped 93% to $1.1 million. This reflects the August 2021 sale of the company's 49% interest in the Opex and Akal joint ventures, eliminating a significant source of equity income present in Q1 2021.
- Financial Expenses: Total financial expenses increased by 28% to $35.3 million, driven by higher interest expenses and yard cost cover.
Outlook, Risks, and Contingencies
- Going Concern Doubt: Management has concluded that a substantial doubt exists over the company's ability to continue as a going concern. This is due to significant losses, substantial debt maturities in 2023, and dependence on additional financing.
- Debt Refinancing Deadline: The company has reached agreements in principle with shipyard creditors to extend maturities from 2023 to 2025. However, these are conditional on refinancing other facilities (Syndicated, New Bridge, Hayfin, Convertible Bonds) by June 30, 2022. No binding agreement has been reached with these other creditors yet.
- Lender Disputes: In April 2022, a group of lenders asserted the company failed to use "best efforts" to sign a binding refinancing agreement by March 31, 2022. The company disputes this assertion, noting no formal default notice has been issued.
- Newbuild Rig Delivery: Keppel notified the company of its intention to sell two newbuild rigs ("Huldra" and "Heidrun"). Borr has accepted delivery on current terms, requiring the company to finance the remaining purchase price ($13.2 million per rig) and refinance the yard debt within 180 days of delivery (anticipated H1 2023).
- Liquidity Actions: The company raised $28.9 million via a private placement in January 2022 and $5.1 million via its ATM program in Q1 2022 to stabilize liquidity.
Investor Verification Checklist
- Verify the status of refinancing negotiations with Syndicated Facility, New Bridge, and Hayfin creditors prior to the June 30, 2022 deadline.
- Confirm the execution of long-form documentation for the shipyard creditor agreements to extend maturities to 2025.
- Monitor the company's ability to secure financing for the early delivery of the two Keppel rigs and the associated refinancing within 180 days.
- Review the impact of the lenders' "reservation of rights" letter on the company's covenant compliance and potential cross-default risks.
- Assess the sustainability of the Adjusted EBITDA turnaround given the high debt service obligations and the loss of equity income from the sold joint ventures.