Financial Instruments

12 Months Ended

Dec. 31, 2022

Note 26 - Financial Instruments

Concentration of credit risk

There is a concentration of credit risk with respect to cash and cash equivalents and restricted cash to the extent that substantially all of the amounts are carried with DNB Bank ASA, Saudi-British Bank and Citibank, however we believe this risk is remote, as they are established and reputable establishments with no prior history of default.

Interest rate risk

The Company is exposed to interest rate risk related to the SOFR floating-rate portion of debts under our existing financing arrangements. There is a risk that SOFR rate fluctuations will have a negative effect on the value of our cash flows. The Company is exposed to changes in long-term market interest rates if and when maturing debt is refinanced with new debt.

In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. The Company is not engaged in derivative transactions for speculative or trading purposes and has not entered into derivative agreements to mitigate the risk of these fluctuations.

Foreign exchange risk management

The majority of the Company's gross earnings are receivable in U.S dollars. The majority of our transactions, assets and liabilities are denominated in U.S. dollars, our functional currency, however, we incur certain expenditures in other currencies. There is a risk that currency fluctuations, primarily relative to the U.S. dollar will have a negative effect on the value of our cash flows. The Company has not entered into derivative agreements to mitigate the risk of these fluctuations.

Supplier risk

A supplier risk exists in relation to our rigs undergoing construction with Keppel, however, we believe this risk is remote as Keppel are global leaders in the rig and shipbuilding sectors. Failure to complete the construction of any newbuilding on time may result in the delay, renegotiation or cancellation of employment contracts secured for the newbuildings. Further, significant delays in the delivery of the newbuildings could have a negative impact on the Company’s reputation and customer relationships. The Company could also be exposed to contractual penalties for failure to commence operations in a timely manner which could adversely affect the Company’s business, financial condition and results of operations.

Concentration of financing risk

There is a concentration of financing risk with respect to our long-term debt to the extent that a substantial amount of our long-term debt is carried or will be carried by Keppel and PPL in the form of shipyard financing. We believe the counterparties to be sound financial institutions, therefore, we believe this risk is remote.

Fair values of financial instruments

The carrying value and estimated fair value of the Company’s cash and financial instruments were as follows:


		As of December 31, 2022		As of December 31, 2021
(In $ millions)	Hierarchy	Fair Value	Carrying Value	Fair Value	Carrying Value
Assets
Cash and cash equivalents(1)	1	108.0	108.0	34.9	34.9
Restricted cash(1)	1	2.5	2.5	3.3	3.3
Trade receivables(1)	1	43.0	43.0	28.5	28.5
Other current assets (excluding deferred costs)(1)	1	25.4	25.4	16.0	16.0
Due from related parties(1)	1	65.6	65.6	48.6	48.6
Non-current restricted cash(1)	1	8.0	8.0	7.8	7.8

Liabilities
Trade payables(1)	1	47.7	47.7	34.7	34.7
Accrued expenses(1)	1	80.8	80.8	45.6	45.6
Short-term accrued interest and other items (1)	1	77.7	77.7	15.3	15.3
Other current liabilities(1)	1	36.2	36.2	18.4	18.4
Short-term debt (2)	1	100.8	100.8	—	—
Short-term debt (3)	2	330.8	350.0	—	—
Long-term debt (2)	1	1,177.7	1,177.7	1,555.3	1,555.3
Long-term debt (3)	2	—	—	173.3	350.0

(1) The carrying values approximate the fair values due to their near term expected receipt of cash.

(2) Short term and long term debt excludes deferred finance charges and effective interest rate adjustments.

(3) This relates to our 3.875% Convertible Bond due in 2023 which is fair valued using observable market-based inputs.

Assets Measured at Fair Value on a Non-Recurring Basis

As at June 30, 2022, the Company measured three newbuildings, "Tivar", "Huldra" and "Heidrun", at a combined fair value of $7.6 million, which was determined using level 3 inputs. As a result of the potential sale of the three newbuilding rigs, the fair value was measured as the best estimate of the sales amount less costs to sell and the sum of the current capitalized cost and the expected cost to complete. The newbuildings were classified as held for sale at September 30, 2022 and subsequently in December 2022 the sale of the three rigs was agreed (see Note 15 - Newbuildings).

As at September 30, 2022, the Company measured the jack-up rig "Gyme" at a fair value of $119.7 million and classified the "Gyme" as held for sale. The fair value was based on the estimated fair value less cost to sell. The rig was subsequently sold in December 2022 (see Note 16 - Jack-Up Rigs, net).

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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