Borr Drilling Limited's (NYSE:BORR) stock fell 6.5% in after-hours trading on Tuesday after the offshore drilling contractor announced a proposed offering of convertible senior notes totaling $250 million.
The company said it intends to sell the convertible senior notes due 2033 to qualified institutional buyers under Rule 144A of the Securities Act of 1933. Borr Drilling will also give the initial purchasers an option, exercisable within 13 days, to purchase up to an additional $37.5 million of notes to cover potential over-allotments.
According to the filing, the notes will be senior, unsecured obligations of the company, will pay interest on a semi-annual basis, and will mature in 2033. The notes will be convertible at the company's election into common shares, cash, or a combination of cash and shares.
Borr Drilling stated that it expects to apply the net proceeds from the offering primarily to repurchase its existing convertible bonds that mature in 2028 and for general corporate purposes. The company added that it may repurchase some of the 2028 convertible bonds concurrently with the pricing of the new notes through separately negotiated transactions with bondholders.
The company also noted a potential market effect related to holders of the 2028 bonds. Specifically, bondholders who previously hedged their equity price exposure could choose to unwind those hedges by purchasing common shares or entering into derivative transactions. Borr Drilling cautioned that such hedging activity could be substantial relative to its historic average daily trading volume and could influence the market price of its common shares, which in turn could lead to a higher effective conversion price on the newly issued notes.
Executives made clear that the offering remains conditional on market and other factors. The registration status of the securities was also addressed: the notes have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an available exemption.
Context on structure and mechanics
- The primary offering size is $250 million, with an initial purchaser overallotment option of $37.5 million exercisable within 13 days.
- Notes are described as senior and unsecured, pay interest semi-annually, and mature in 2033.
- Conversion can be settled in shares, cash, or a mix thereof, at the company's election.
This announcement and related caveats on hedge unwinding and market conditions are included in the company disclosure about the offering. The securities' sale will depend on prevailing market circumstances and the availability of required exemptions from registration.