Borr Drilling ($BORR) 2030 Bonds – High-Yield Exposure to the Dreaded Offshore Category with Downside Protection

If you’re looking for a high-octane yield investment that doesn’t keep you up at night, Borr Drilling’s 10.375% senior secured notes due 2030 deserve a close look.

May 30, 2025

Quick Hits:

Borr ($BORR) has one of the most modern fleets of jackups in the world (24) and the supply of jackups has become very limited
A lot of offshore investors are focused on Borr equity, which we think is also interesting, the Borr senior secured bonds offer unique downside protection and a mid-teens IRR, so we are recommending those over the equity given R/R.
These bonds are senior secured, have mandatory amortization, and pay a 10.375% coupon, so they are as protected as we can get on the capital stack.
Quick and dirty math - there are $630 million of these bonds outstanding alongside $1.2 billion of the 2028 senior secureds. Borr has 24 jackups and $170 million in cash on the balance sheet today, so net senior debt is $1.6 billion. In a bankruptcy, you’d have to believe you can get $66 million per jackup for the bonds to be be made whole, net of the cash. For reference - Valaris just sold a 27-year old jackup (Valaris 247) for $108 million, and Borr’s jackups are much newer. You’d have to believe a firesale yields a 45%+ discount to the Valaris price to be impaired on this debt. And this calculation excludes any free cash flow generated along the way to pay down the debt (in 2025 alone, Borr will most certainly pay down the $135 million in mandatory amort)
These bonds are trading at 81-82c on the dollar. Meaning…the 10.375% interest plus mandatory amortization yields a 16.3% annual pre-tax return. Keep in mind the mandatory amortization derisks the lump repayment risks meaningfully.
Investors have multiple paths to realize upside beyond the generous coupon. The notes are non-callable until late 2026, locking in a 10.375% cash coupon for now; thereafter Borr has the option to refinance or redeem them at a premium, potentially delivering an early payoff at or above par. Furthermore, the bonds could appreciate in price even without a formal call (via spread tightening), allowing investors to capture gains well before maturity.
Even if you don’t love offshore and the equity scares you, the bonds seem pretty bulletproof. Borr’s free cash flow comfortably covers its debt service. 2024 adjusted EBITDA was on the order of $500+ million, more than 2× the annual cash interest (~$200 million) and sufficient to meet the ~$100 million yearly amortization. Even after modest capex, the company is generating positive free cash flow to pay down debt. Importantly, even under conservative dayrate/utilization scenarios, projected cash flows indicate Borr can still service interest and amortization.

Big Yields from Shallow Waters…yes we came up with that, not AI:

Borr Drilling is an offshore oil drilling contractor specializing in “jack-up” rigs (mobile platforms that stand on the seafloor in shallow water). In plain English, Borr owns a fleet of modern drilling rigs that oil companies rent to drill wells. Yes, we are proposing investing in the brutal, horrible, painful world of offshore. But, please hear us out :).

Borr’s fleet of 24 jack-ups is one of the most modern out there for jackups. As of May 2025, 22 out of the 24 rigs are contracted at 79% contract coverage for 2025 and an average day rate of 147k. At the core, this is a simple business - floating pieces of steel that are expensive to produce today that get leased out to offshore producers at a day rate that depends on supply/demand of rigs. Over the past decade, the number of offshore rigs has gone down as companies have gone bankrupt, consolidated, and scrapped rigs. Global jack-up rig utilization is over 90% and dayrates have been driven higher due to limited supply. Plenty of smarter offshore asset investors than us have written at length about this dynamic. Newbuild costs are incredibly high, so the order books for new jackups are limited. Valaris just sold a 27-year old jackup (Valaris 247) for $108 million, as mentioned above.

To capitalize on the improving market and refinance old debt, Borr issued $690 million of 10.375% senior secured notes due November 2030 (including a recent $175M add-on in late 2024). Now these notes are trading hands at just ~$0.81 on the dollar. For us, that discount is key to the story: it boosts the effective yield and potential upside well above the 10.375% coupon.

Bond Basics (because we are rookie credit investors too)

Let’s break down the bond details:

Coupon: 10.375% interest, paid semiannually. At the current ~$81 price, the cash yield is about 12.8% per year (10.375%/0.81) – very high by any standard.
Maturity: November 15, 2030 (about 5½ years from now).
Security: This is a senior secured note – it’s first in line on Borr’s assets (24 modern jack-up rigs). Essentially, bondholders have a lien on the rigs themselves. If things ever went truly south, those rigs (which cost hundreds of millions each to build new) are the safety net. The total bond debt equates to roughly $26 million per rig, a fraction of replacement cost.
Ranking: These notes sit alongside Borr’s other secured notes (the company also has 10% notes due 2028) and ahead of any unsecured debt. There is also a small undrawn bank revolver above them, but in practical terms these bonds hold the keys to the kingdom asset-wise.

Crucially, the bond has bondholder-friendly features: a couple of built-in mechanisms actually force the company to pay down debt early, which is great for those of us holding (or about to hold) the notes.

Getting Paid Back Early (At a Premium!)

One unique perk of Borr’s 2030 notes is that the company can’t just kick the can to 2030 – they have to chip away at the balance every six months, and pay a premium while doing it:

Scheduled Amortization: Starting May 2024, Borr must redeem $12.5 million of these notes every six months. That works out to $25 million per year (a roughly 5% annual principal paydown). Better yet, each of those redemptions is done at 105% of face value. In other words, for every $100 of principal Borr pays back, they shell out $105. If you bought your bonds at 81 cents, getting $105 on portions of your principal is a nice little kicker. This mandated amortization steadily shrinks the debt (reducing risk over time) and rewards bondholders with extra yield.
Excess Cash Flow Sweep: On top of the fixed amortization, there’s an “Excess Cash Flow” provision each year. If Borr is coining cash beyond certain thresholds and hasn’t reduced leverage enough, they must offer to repurchase additional notes at 105% using a chunk of that surplus cash. The higher the leverage, the bigger the required buyback (up to 75% of excess cash if leverage is over 3.0x EBITDA). Essentially, if Borr does well, bondholders automatically share in the spoils through early repayments at a premium. (Of course, if the bonds are trading above 105, holders could refuse and keep the debt – but right now they trade far below that, so we’d happily take the money and run.)

These features mean that, unless Borr hits a serious snag, the total debt will dwindle year after year before 2030 even arrives. For bond investors, that’s a great form of downside protection – you get some of your capital back early (at an attractive price), rather than waiting a full decade and hoping for a big check at the end.

Yes, It’s a Bond, But It Has Upside:

Buying a bond at 81 cents on the dollar sounds great if you eventually get paid back at 100. But how might that play out? Here’s the upside scenario in a nutshell:

Juicy Yield to Maturity: Simply holding these notes to 2030 at the current price would yield on the order of 16%+ annually (in IRR terms). That’s the combo of the 10.375% coupon and the price appreciation from $81 to $100 at maturity.
Refinancing or Takeout Option: In high-yield land, companies rarely let expensive debt linger if they can refinance cheaper. Borr’s notes become callable in late 2026. If Borr’s business continues to improve (as we expect, given strong rig demand) and credit markets cooperate, there’s a good chance the company refinances or calls these notes early – likely at a premium (the first call price should be around 105% of par). In an early takeout, bondholders would reap a superb IRR. Imagine buying at 81 and getting taken out at 105 after a couple of years on top of collecting 10%+ coupons and some 105% amortization payments in between. The rough math would put your total return well north of 30% in that scenario.
Spread Compression: Even without an outright refinancing, these bonds could simply trade up if market perceptions of Borr improve. Today the notes yield around 16%, but consider that peers like Valaris and Noble (larger offshore drillers that went through restructurings) have bonds in the 7–9% yield range. Borr is smaller and currently rated a notch lower (around single-B), but its assets and business are comparable (jack-up rigs earning strong rates). As Borr delivers on earnings and pays down debt, it’s quite plausible the market could rerate its risk closer to peers – which would mean the bond price climbing toward par. Even a move from 81 to, say, 90 would generate a ~11% price gain on top of interest.

Asset Coverage Protects Downside

No investment is without risk, especially not a high-yield bond from a cyclical industry that everyone hates. But we think the downside feels well protected here:

Hard Asset Coverage: Those 24 jack-up rigs securing the notes aren’t lumps of steel…they are lumps of steel in high demand, with finite supply and day rates of $130-145k per day. Even during downturns, modern rigs retain significant value (they can be sold, or redeployed when the cycle turns). At the current bond price, the market implies a very low valuation per rig far below current market prices or replacement cost. We have a first claim on these assets. In a worst-case liquidation scenario, it’s not hard to envision substantial recovery for bondholders by selling or refinancing the rigs. For context, new high-spec jack-ups cost over $200 million to build; Borr’s net debt per rig is a fraction of that.
Contracted Cash Flows: Unlike an equity that needs ever-rising profits, a bond just needs the company to pay interest and principal. Borr’s backlog of $1.3+ billion provides a solid runway of revenue. With nearly all rigs working (and at improving rates), the cash flow to service debt is visible and resilient for the next few years.
Amortizing Debt: The scheduled amortization we discussed isn’t just an income booster – it’s a risk reducer. Every six months that Borr makes those $12.5M redemptions, the total debt outstanding shrinks. By the later years, bondholders will have a smaller amount at risk.
Improving Financial Position: Borr’s management appears committed to de-leveraging. They’ve raised equity when needed, stopped paying dividends (for now) to conserve cash, and focused on getting all rigs earning money. As of Q1 2025, Borr had around $170 million in cash plus an undrawn $150 million revolver – a healthy liquidity cushion – and leverage is on a downward trajectory thanks to rising EBITDA. By 2026, the company’s net debt/EBITDA could drop to ~2x (from ~3.5-4x in 2024).
Industry Fundamentals: The jack-up drilling market itself provides a backstop. Supply and demand for shallow-water rigs are currently favorable – there are few idle modern rigs globally and high barriers (it takes years and lots of capital to build new rigs). Even if oil prices waver, the lack of spare capacity means dayrates likely won’t collapse like they did in past downturns. And many of Borr’s rigs are working in places (like the Middle East) on multi-year development programs that tend to persist through commodity price volatility. So the cyclicality risk, while real, is mitigated by a structurally tighter market this time around.

Final Thoughts: High-Conviction Income Play

Our fundamental take is that the market is overly discounting Borr’s credit risk and not properly factoring in asset value from the premium jackup portfolio. We are locking in a double-digit yield today on a company that’s generating solid cash flow in a strong industry cycle. Meanwhile, we have the comfort of asset coverage and built-in debt reduction steadily reducing risk over time.

At the end of the day, if you can handle a bit of oil sector volatility, Borr’s 10.375% 2030 bonds offer an extremely attractive risk/reward. You collect fat coupon checks (funded by real cash flows), watch your principal balance tick down at a premium, and wait for the market to wake up to the value – or for Borr to take you out at a nice profit. We’re happy to clip these coupons and enjoy the ride until Mr. Market closes the gap.