Posted on July 19, 2022
For the second time in 18 months, offshore drilling contractor Borr Drilling is reporting that it has reached terms with creditors to refinance the company. The heavily-leveraged company announce that agreements in principle have been reached with most of the secured creditors to extend the majority of secured debt to 2025.
Borr has been saddled with high debt levels from a series of acquisitions, asset purchases, and shipbuilding agreements carried out with Paragon, Transocean, Hercules, Keppel FELS, and PPL Shipyard. Facing deadlines on its approximately $1.9 billion in debt, Borr two weeks ago announced that it had agreed to a two-week covenant waiver with relevant lenders in order to get more time to agree on the refinancing terms.
The new agreements in principle announced on July 14 contemplates a partial paydown of the senior secured facility collateralized by eight rigs lowering it from $313 million to $250 million, out of which $100 million is subject to successful syndication. If the company is successful in reducing this facility to $150 million drawn, then three of the rigs will be unencumbered assets that could be sold to reduce capital requirements. In addition, the agreement in principle contemplates a $30 million paydown of a credit facility from Hayfin.
These steps would be in addition to the company’s announcement in June that three rigs under construction were being sold. Borr said it had received a binding LOI for the three vessels. The company reports that it is also targeting the sale of an additional rig in the fourth quarter of 2022. After the asset sales are completed, Borr’s fleet would consist of 22 delivered rigs plus two additional rigs under construction.
Concurrently with the announcement that the company has agreed in principle to the terms of the refinancing, Borr also announced that it plans to launch an equity offering after it reports second quarter results on August 11. The proceeds of the potential equity raise are expected to be used to partially paydown certain secured facilities. The company is targeting a raise of up to $250 million in the offering, which could be reduced in case of syndication of facilities, additional asset sales, or joint ventures can be realized. If the offering proceeds at the $250 million level it would represent a significant dilution to existing shareholders of the company, which has a market valuation as of today of around $400 million.
Once these steps are completed, Borr said would have long-term financing of approximately $1.4 billion, giving it the ability to pursue market opportunities. They also noted that the proposed refinancing maintains the long-term financing in the amount of $260 million on the two new builds. The company currently has five vessels on contract at Keppel FELS with the agreements to sell the three high-specification units that were part of its Super B Bigfoot class. The three vessels to be sold are each 246 feet long with the capability to operate in water with a depth of up to 400 feet and a maximum drilling depth of 35,000 feet.
Borr told investors and analysts in May that market conditions were quickly improving along the anticipated course. “The significant amount of contracts awarded recently, in combination with a sustained demand for additional rigs has put the offshore drilling industry on a strong growth trajectory,” said Patrick Schorn, CEO of the company. Citing utilization levels, day rates, and contracts, he predicted that demand for modern rigs was likely to outstrip supply. He highlighted that contracted jack-up rigs had recovered to pre-COVID levels forecasting that new awards would bring the industry back to levels last seen in 2015.