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Borr Drilling's director keeps buying: what insider purchases do and do not signal

Tor Olav Trøim has added 10.1m Borr Drilling shares since mid-August. Decades of research say such purchases carry information, but less than headlines imply.

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On the morning of October 12th Borr Drilling, an offshore jack-up rig contractor listed in New York and Oslo, published a short notice that has become routine for its shareholders. Drew Holdings, a company tied to its director Tor Olav Trøim, had bought another 2,500,000 shares at an average price of $4.7374. It was the fourth such purchase in a single week. Securities filings for the preceding days show 1,500,000 shares bought on October 5th at $4.1314, a further 1,500,000 on October 6th at $4.2428 and 1,250,000 on October 7th at $4.3122.

Taken together, that is 6.75m shares and roughly $29.8m in a week, paid at steadily rising prices. Counting from mid-August, Mr Trøim's vehicle has bought 10.1m shares for about $43.9m. For anyone who follows insider filings, this is among the more conspicuous patterns of buying at a US-listed company this autumn. The question for individual investors is what such a sustained bet actually tells them, and what it cannot.

The pattern in the filings

The Form 4 reports filed with the Securities and Exchange Commission make the sequence unusually easy to trace. Drew Holdings is described as wholly owned by Drew Trust, a non-discretionary trust of which Mr Trøim is the beneficiary. Its stake stood at 28,685,941 shares after a purchase of 1,500,000 shares at $4.0245 on August 13th. Smaller purchases followed on August 14th, August 25th, September 16th and September 17th. After the latest trade the holding reaches 37,285,941 shares. Against the 308,512,741 shares the company reported outstanding at the end of June, that is about 12% of the equity.

He is not entirely alone. Bruno Morand, the chief executive, bought 45,500 shares at $4.40 on September 18th, lifting his direct holding to 1,015,328 shares. Over the same weeks, several senior executives, including the chief financial officer and the general counsel, reported sales. Their filings state explicitly that the shares were sold solely to cover tax withholding on vesting restricted stock units and did not represent discretionary decisions. That distinction matters more than it might seem, and it is one the academic literature has spent decades trying to formalise.

What the company is going through

The buying comes against a difficult backdrop. Borr's second-quarter results, released in August, showed adjusted EBITDA of $43.8m, down 51% from the first quarter. The company blamed costly preparation and regulatory work on the Odin rig ahead of a contract offshore Texas, six rigs moving between contracts, higher insurance and fuel costs linked to the conflict in the Middle East, and $10.8m of credit losses on a former customer in West Africa. A refinancing of substantially all of its debt produced a $176.3m extinguishment charge and a quarterly net loss of $241.4m.

The balance sheet is heavily geared. Debt outstanding was $2,529.2m in principal at the end of June, against total liquidity of $473.6m. The refinancing did, however, push maturities out to 2032 and beyond. Management said 2026 contract coverage stood at 73% at an average dayrate of about $134,000, and that backlog was $1.04bn at the end of June. Its outlook was candid about uncertainty: the Middle East conflict had delayed tenders and contract starts, but disruption in the Strait of Hormuz had driven global inventories very low, which the company argued would eventually require more production drilling.

Since then the news flow has been modestly encouraging. The Odin began earning dayrate revenue on September 11th, and at the end of September the company announced new commitments for three rigs, including a binding letter of award in West Africa and an option exercised by Shell in Nigeria. Mr Trøim's purchases have tracked that recovery: the price he paid rose from just over $4 in mid-August to almost $4.74 in the latest trade.

What decades of research say

The case for paying attention to such purchases rests on a substantial body of evidence. Josef Lakonishok and Inmoo Lee, studying all companies on the NYSE, AMEX and Nasdaq from 1975 to 1995, found that insiders as a group predicted returns, but that this ability came from purchases. Insider selling showed no predictive power. The effect was concentrated in smaller companies, and markets barely reacted either when insiders traded or when the trades were reported.

Later work sharpened the picture. Lauren Cohen, Christopher Malloy and Lukasz Pomorski separated "routine" insider trades, which follow a predictable calendar pattern and make up more than half of the total, from "opportunistic" ones. Routine trades carried essentially no information. A portfolio built only on opportunistic trades earned about 82 basis points a month in value-weighted abnormal returns, and those trades also anticipated company-specific news.

Buybacks, the corporate cousin of insider purchases, have a similar history. Ikenberry, Lakonishok and Vermaelen found that firms announcing open-market repurchases between 1980 and 1990 delivered an average abnormal four-year buy-and-hold return of 12.1%. For value stocks, where undervaluation was a more plausible motive, the figure was 45.3%. For glamour stocks there was no positive drift at all.

On this evidence, Mr Trøim's buying ticks several boxes. It is open-market purchasing rather than selling, at a smaller and out-of-favour company, by a director spending his own money in large, irregular amounts. It is precisely the opposite of the tax-driven sales by his colleagues.

What the signal cannot tell you

The same research also counsels restraint. The findings are averages across thousands of trades; they say nothing reliable about any single company. Abnormal returns accrue over months and years, and they come with wide dispersion. A director can be right about the long-term value of a fleet and still endure a long period in which the shares go nowhere, particularly in a cyclical industry exposed to oil prices, geopolitics and refinancing markets.

Insiders also buy for reasons other than a view on value. A large holder may want to consolidate influence, signal confidence to lenders and customers, or average down on an existing stake. A shareholder already owning about 12% of a company has a different risk profile from an outside investor, and a different ability to shape outcomes. None of these motives can be read off a Form 4.

There is also the question of scale. On October 9th, according to one tracker of filings worth $250,000 or more, directors and officers reported 5 open-market purchases worth about $15.4m in total, against 46 sales worth $174.1m. Purchases are rare, which is part of why they draw attention, but rarity also makes headline examples easy to over-interpret.

Our view

Mr Trøim's October buying is a genuine signal in the sense the literature describes: discretionary, concentrated, sizeable and directed at a cyclically depressed company with a leveraged balance sheet. It tells investors that one of the best-informed people connected with Borr believed the shares were cheap at prices between roughly $4 and $4.74. It does not tell them when, or whether, the market will agree, and it does not neutralise $2.5bn of debt or the exposure to a volatile region.

The useful habit for individual investors is to read insider filings as the academics do: separate routine from opportunistic trades, give more weight to purchases than to sales, and treat any single case as one data point rather than a verdict. What to watch at Borr is less the next notice from Drew Holdings than the third-quarter numbers, which management has said should show a significant improvement in adjusted EBITDA. Those figures, not the director's conviction, will decide whether his bet looks prescient.

This article is for information only and is not investment advice.

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Filed under Investing. Written by Invest Times Editorial under our editorial standards. Commentary and analysis for information only, not investment advice.

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