Primus Guaranty, Ltd. Reports Third Quarter 2012 Results

Primus Guaranty, Ltd. Reports Third Quarter 2012 Results

HAMILTON, Bermuda--(BUSINESS WIRE)-- Primus Guaranty, Ltd. ("Primus Guaranty" or "the Company") (OTC PINK:PRSG) today announced its financial results for the third quarter ended September 30, 2012.

  • GAAP net income available to common shares for the third quarter 2012 was $108.2 million, or $3.84 per diluted share, compared with a GAAP net loss available to common shares of $283.1 million, or $7.76 per diluted share, for the third quarter 2011.

  • Economic Results for the third quarter 2012 were $3.5 million, or $0.12 per diluted share, compared with Economic Results of $10.2 million, or $0.28 per diluted share, for the third quarter 2011. The primary difference between GAAP net income and Economic Results is that changes in the fair value of Primus Financial Products, LLC ("Primus Financial")'s credit swap portfolio are not included in Economic Results.

  • Economic Results book value per common share was $9.85 at September 30, 2012, compared with Economic Results book value per common share of $8.60 at December 31, 2011.

  • At September 30, 2012, the notional principal of Primus Financial's consolidated credit swap portfolio totaled $5.8 billion.

  • Primus Guaranty redeemed the remaining $81.9 million (face value) of its 7% Senior Notes due 2036 at par on September 27, 2012. This resulted in an accelerated write-off of debt issuance costs of $2.3 million, which was recorded under "Interest expense" in the third quarter 2012.

  • Primus Guaranty purchased approximately 1.3 million of its common shares for an aggregate cost of approximately $9.6 million in the third quarter 2012.

Additional Information


A copy of this press release, the financial supplement and a letter dated November 2, 2012 to the shareholders from Richard Claiden, Chief Executive Officer, are available in the Investor Relations section of the Company's Web site at www.primusguaranty.com.

Economic Results

In managing its business and assessing its profitability from a strategic and financial planning perspective, the Company believes it is appropriate to consider both its U.S. GAAP net income (loss) available to common shares as well as certain non-GAAP financial measures called "Economic Results". We define Economic Results as GAAP net income (loss) available to common shares, adjusted as follows:

  • Unrealized gains (losses) on credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;

  • Realized gains from early termination of credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;

  • Realized gains from early termination of credit swaps sold by Primus Financial are amortized over the period that would have been the remaining life of the credit swap. The amortized gain is included in Economic Results;

  • A provision for credit default swaps on asset-backed securities ("CDS on ABS") credit events is included in Economic Results; and

  • A reduction in provision for CDS on ABS credit events, upon termination or principal write-down of credit swaps, is included in Economic Results.

The Company believes that quarterly fluctuations in the fair market value of Primus Financial's consolidated credit swap portfolio have little or no effect on the Company's business operations and that Economic Results provides a useful, alternative view of the Company's economic performance.

About Primus Guaranty

Primus Guaranty, Ltd. is a Bermuda company with offices in New York. Through its subsidiary, Primus Financial Products, LLC, the Company provides protection against the risk of default on primarily investment grade corporate and sovereign reference entities. Its common shares trade on the OTC Pink Tier of the OTC market. Investors can find Real Time Level 2 quotes and market information for the Company on www.otcmarkets.com.

Forward-Looking Statements

Some of the statements included in this press release and other statements Primus Guaranty may make, particularly those anticipating future financial performance, business prospects, operating strategies and plans, market performance, valuations and similar matters, are forward-looking statements that involve a number of assumptions, risks and uncertainties, which change over time. Any such statements speak only as of the date they are made, and Primus Guaranty assumes no duty to, and does not undertake to, update any forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements, and future results could differ materially from historical performance. For a discussion of the factors that could affect the Company's actual results please refer to the risk factors identified by the Company in, among other documents, its Annual Report on Form 10-K for the year ended December 31, 2011 and other filings previously made with the U.S. Securities and Exchange Commission.

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(in thousands except share amounts)

September 30,

December 31,

2012

2011

Assets

Cash and cash equivalents

$

35,095

$

87,247

Investments (includes $257,144 and $341,485 at fair value

as of September 30, 2012 and December 31, 2011, respectively)

257,144

341,656

Restricted cash and investments

142,100

137,759

Accrued interest and premiums

4,591

5,725

Unrealized gain on credit swaps, at fair value

326

-

Debt issuance costs, net

734

3,444

Other assets (includes $3,119 and $7,424 at fair value as of

September 30, 2012 and December 31, 2011, respectively)

4,645

9,993

Total assets

$

444,635

$

585,824

Liabilities and Equity (deficit)

Liabilities

Accounts payable and accrued expenses

$

5,095

$

5,847

Unrealized loss on credit swaps, at fair value

97,766

457,939

Payable for credit events

2,458

1,985

Long-term debt

76,800

172,334

Other liabilities

2,955

3,211

Total liabilities

$

185,074

$

641,316

Equity (deficit)

Common shares, $0.08 par value, 62,500,000 shares authorized,

27,405,924 and 34,838,420 shares issued and outstanding at

September 30, 2012 and December 31, 2011, respectively

2,192

2,787

Additional paid-in capital

212,904

260,258

Accumulated other comprehensive income

3,255

1,086

Retained earnings (deficit)

(36,917)

(409,769)

Total shareholders' equity (deficit) of Primus Guaranty, Ltd

181,434

(145,638)

Preferred securities of subsidiary

78,127

90,146

Total equity (deficit)

259,561

(55,492)

Total liabilities and equity

$

444,635

$

585,824

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2012

2011

2012

2011

Revenues

Net credit swap revenue (loss)

$

112,500

$

(283,404

)

$

379,440

$

(136,297

)

Interest income

2,308

2,436

7,357

7,616

Gain on retirement of long-term debt

157

2,061

1,582

4,821

Other income

815

153

1,005

771

Total revenues

115,780

(278,754

)

389,384

(123,089

)

Expenses

Compensation and employee benefits

1,489

1,443

5,320

5,135

Professional and legal fees

359

706

1,157

2,202

Interest expense

4,405

1,445

8,949

4,558

Other

715

994

2,436

3,387

Total expenses

6,968

4,588

17,862

15,282

Income (loss) from continuing operations before provision

(benefit) for income taxes

108,812

(283,342

)

371,522

(138,371

)

Provision (benefit) for income taxes

75

-

97

11

Income (loss) from continuing operations, net of tax

108,737

(283,342

)

371,425

(138,382

)

Income (loss) from discontinued operations, net of tax

52

919

3,558

3,457

Net income (loss)

108,789

(282,423

)

374,983

(134,925

)

Less:

Distributions on preferred securities of subsidiary

601

682

2,131

2,343

Net income (loss) available to common shares

$

108,188

$

(283,105

)

$

372,852

$

(137,268

)

Income (loss) per common share:

Basic:

Income (loss) from continuing operations

$

3.85

$

(7.79

)

$

11.90

$

(3.76

)

Income (loss) from discontinued operations

$

0.00

$

0.03

$

0.11

$

0.09

Net income (loss) available to common shares

$

3.85

$

(7.76

)

$

12.01

$

(3.67

)

Diluted:

Income (loss) from continuing operations

$

3.84

$

(7.79

)

$

11.87

$

(3.76

)

Income (loss) from discontinued operations

$

0.00

$

0.03

$

0.11

$

0.09

Net income (loss) available to common shares

$

3.84

$

(7.76

)

$

11.98

$

(3.67

)

Weighted average common shares outstanding:

Basic

28,120

36,470

31,330

37,411

Diluted

28,189

36,470

31,403

37,411

Note: Basic and diluted net income (loss) available to common shares for the nine months ended September 30, 2012 includes the impact of a $3.5 million gain that resulted from the purchase of $12.2 million (face value) Primus Financial preferred securities.

Primus Guaranty, Ltd.

Regulation G and Other Disclosure

Economic Results

September 30, 2012

(Unaudited)

In managing its business and assessing its profitability from a strategic and financial planning perspective, the Company believes it is appropriate to consider both its U.S. GAAP net income (loss) available to common shares as well as certain non-GAAP financial measures called "Economic Results". We define Economic Results as GAAP net income (loss) available to common shares, adjusted as follows:

 Unrealized gains (losses) on credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;

 Realized gains from early termination of credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;

 Realized gains from early termination of credit swaps sold by Primus Financial are amortized over the period that would have been the remaining life of

the credit swap. The amortized gain is included in Economic Results;


 A provision for CDS on ABS credit events is included in Economic Results; and

 A reduction in provision for CDS on ABS credit eve