Borr Drilling Q4 Earnings Decline Amid Fleet Expansion, Highlighting Leverage Risks

What happened

Borr Drilling reported a 6% drop in Q4 2025 revenues to $259.4 million and a net loss of $1.0 million, with Adjusted EBITDA falling 22% to $105.2 million, reflecting operational pressures from market softness and disruptions. The company completed a $360 million acquisition of five premium jack-up rigs from Noble, funded by $165 million in high-coupon senior secured notes and an $84 million equity offering, adding to its already substantial debt load. For the full year, net income decreased 45% to $45.0 million, though Borr secured 24 new contract commitments representing $649 million in backlog, which the CEO touted alongside high utilization rates. However, the DeepValue report warns that such expansions increase leverage without guaranteed EBITDA accretion, given cancellable backlog and volatile Mexico receivables. This quarter's results underscore the tension between Borr's growth strategy and its fragile balance sheet, with net debt/EBITDA at 4.33x and interest coverage thin at 1.5x.

Implication

The Q4 earnings dip and full-year decline signal that Borr's operational resilience is faltering amid market headwinds, challenging the optimistic assumptions embedded in its equity valuation. Funding the Noble rig acquisition with expensive debt and equity dilutes shareholders and raises interest burdens, making deleveraging via EBITDA growth more uncertain. While new contracts provide near-term backlog, they rely on smooth execution in risky markets like Mexico, where payment delays and suspensions could recur. High leverage at 4.33x net debt/EBITDA, coupled with S&P's 'B' rating, increases refinancing risk and potential for further downgrades if EBITDA guidance weakens. Overall, this reinforces a cautious stance, as the equity lacks margin of safety and is vulnerable to execution setbacks or softer dayrates, aligning with the DeepValue report's 'POTENTIAL SELL' rating.

Thesis delta

The Q4 results validate the bearish concerns in the DeepValue report, as declining EBITDA and increased debt from acquisitions heighten execution risks and leverage pressures. However, the new contract awards offer some revenue visibility but do not materially alter the thesis, given the cancellable nature of backlog and persistent financial strain. This shift reinforces the need for investors to trim exposure until tangible evidence of deleveraging emerges, such as net debt/EBITDA trending below 4x or successful contracting of unplaced Noble rigs.