Borr Drilling's Fleet Expansion Amplifies Debt Concerns Amid Management Shift

What happened

Borr Drilling has rebounded operationally with revenue and EBITDA stabilizing after a weak Q1 2025, driven by high utilization and a young jack-up fleet. However, the company recently acquired five jack-up rigs for $360 million, increasing its fleet size but adding significant long-term debt and financial risk. This acquisition exacerbates an already heavy debt stack, with net debt/EBITDA at 4.33x and a large 2028 maturity wall that management does not expect to repay from internal cash flows. A management transition to new CEO Bruno Morand signals continuity, but strategic oversight remains with the former CEO, offering little substantive change to address core financial vulnerabilities. Despite operational improvements, the heightened leverage underscores the cyclical and refinancing risks previously highlighted, reinforcing the need for cautious investor scrutiny.

Implication

Investors should note that while the rig acquisition could enhance revenue potential in a tight offshore market, it directly increases leverage in a company already burdened by high-cost debt and thin interest coverage. The added debt raises the stakes for Borr's ability to refinance its 2028 maturities on favorable terms, a critical risk identified in the DeepValue report that could trigger equity dilution or distress. Management continuity under new leadership does not mitigate these financial risks, especially with oil prices forecasted to trend lower and offshore capex at risk, potentially pressuring dayrates and utilization. Positive free cash flow from operational strength is now even more crucial to service the expanded debt, but cyclical downturns or contract cancellations could quickly erode this capacity. Therefore, the equity remains a high-beta play on shallow-water activity, with the acquisition amplifying both upside potential and downside risk, justifying a wait-and-see approach until clearer deleveraging or refinancing actions emerge.

Thesis delta

The acquisition of five rigs for $360M introduces additional debt, aligning with and potentially worsening the existing high-leverage concerns in the DeepValue thesis. While fleet expansion could support revenue growth, it does not address the core refinancing risk and may increase financial strain, thus reinforcing the 'WAIT' stance rather than shifting it towards a more positive view.