Borr Drilling plans to restructure its corporate structure (NYSE:BORR)

Borr Drilling (BORR) has just released its third quarter report, giving investors a chance to see how things are going for the driller who continues to fight for survival with the current capital structure.

Borr reported revenue of $59.2 million and a net loss of $61.9 million, or $0.39 per share. The company’s operating cash flow was -$5.8 million, which is normal in the current market environment. Borr Drilling ended the quarter with $12.5 million in cash on the balance sheet and $1.9 billion in long-term debt.

However, the company’s balance sheet was improved in the fourth quarter, with Borr raising $27.5 million via a stock offering at $0.53 per share in early October and receiving $13 million for the sale of its autos. -Atla and Balder cold elevators. In addition, Borr collected $8.8 million of the Paragon Litigation Trust claim from the bankruptcy of Noble Corp. A few days ago, Borr sold 10 million shares at $0.53 per share and raised $5.3 million.

In total, Borr Drilling increased its cash position by $54.6 million. These funds will allow it to continue its operations during the most difficult period of the offshore drilling market and wait for the first season of post-pandemic contract renewals which should take place closer to the second half of 2021.

Unsurprisingly, the company reported few developments on the contract front. The letter of intent for the Prospector 1 jackup has turned into a contract with One-Dyas, and the rig will operate from October 2020 to January 2021 in the Netherlands. Meanwhile, the jackup Norve has received a letter of intent for work in West Africa. Currently, the platform is hot stacked in Gabon, and the platform can operate from March 2021 to May 2021 for an undisclosed client.

Source: Borr Drilling State of the Fleet Report

At this point, Borr Drilling managed to get rid of all cold stacked units, so now their fleet consists exclusively of modern jackups. Out of 28 platforms, 13 have a contract, 10 are available and 5 are under construction. Obviously, Borr Drilling wants to increase the number of working rigs, but it remains to be seen when that will become possible.

At the same time, cash management remains a top priority for the company’s management. Here is what Borr said in the report: “Specific discussions take place with each group of creditors. the the desired outcome, when completed, will include contributions from all creditors, either through a reduction or carry forward of cash interest and other related charges, longer maturities and a more flexible set of guarantees. A part of these negotiations is to restructure our corporate structure, allowing better separation of entities with corresponding privileges or different groups of creditors. This would allow the low leverage components of the envisioned corporate structure to attract additional capital, thereby strengthening the group’s overall liquidity and financial positionnot“.

It appears that Borr is sticking to his minor restructuring approach in which he tries to avoid a full restructuring (with a corresponding write-off of common stock) by taking various actions that result in bit-by-bit dilution. Clearly, creditors will not allow Borr to reduce or defer cash interest or restructure the corporate structure in a way that is comfortable for the company without corresponding compensation. Most likely, current investors will have to go through more cycles of dilution.

Interestingly, Borr’s stock price is significantly higher than the price of the last stock offering. In my view, this price action has nothing to do with company fundamentals. Most oil-related stocks have recently received a major boost as oil prices hit multi-month highs, so speculative stocks like Borr have received serious support from traders at short term. In the short term, the sustainability of this rise depends on fluctuations in oil prices rather than Borr’s own performance.

Basically, the company remains in a tough spot and needs to secure more contracts for its jackups in order to get back into positive operating cash flow territory. At this point, it looks like further dilution is almost guaranteed due to the aforementioned discussions with creditors – this is an important factor to watch out for in case you are considering establishing a speculative position in Borr Drilling.

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