(Idea) Borr Drilling Shares Look Attractive After Their Recent Selloff
By: Jon Costello
I am taking Borr Drilling BORR 0.00%↑ off my ‘avoid’ list.
When I last covered the stock on May 22, I set a high bar to turn constructive. I wrote that two things had to happen together: the company had to refinance its 2028 and 2030 notes on attractive terms, and the shares had to fall below $4.00. I stated that “either condition in isolation wouldn’t be enough.” One of those conditions has now been decisively resolved. The other is almost there.
The Refinancing Removes a Key Risk
Boor’s maturity wall is now gone. On May 27, the company priced and upsized a $2.035 billion senior secured notes offering, comprising $1,100 million at 8.750% due 2032 and $935 million at 9.000% due 2034. The proceeds refinance in full the $1,128 million of 10.000% notes due 2028 and the $771 million of 10.375% notes due 2030. By June 9, holders of 95.92% of the 2028 notes and 90.56% of the 2030 notes had tendered, the restrictive covenants were stripped, and the liens were released. The offering closed on June 10. This was the variable I called the most actionable catalyst for the stock, and Borr just executed it.
The new terms are better than the terms in the former notes. The blended coupon fell from roughly 10.2% to about 8.9%, and the nearest major maturity moved from May 2028 out to 2032. The refinancing did not deleverage the company; gross debt is modestly higher after fees and call premiums. But it removed the single most binary risk in my prior thesis, namely, the need to roll $1.9 billion through an uncertain 2028 capital market. That overhang is no longer the binding constraint on owning the shares.
Same Data, Better Price
My objection in May was primarily aimed at Borr’s stock price, not its business. I wrote then that the balance-sheet repair “was real and earned the rally,” and that the shares had “significant torque to higher dayrates.” My problem was that at $5.59, Borr was “already priced for” an operating recovery that had not arrived. That objection has largely dissolved. The stock has fallen by 26%, to about $4.13, while the operating data sits unchanged.