Primus Guaranty, Ltd. Reports Fourth Quarter and Full Year 2012 Results

Primus Guaranty, Ltd. Reports Fourth Quarter and Full Year 2012 Results

HAMILTON, Bermuda--(BUSINESS WIRE)-- Primus Guaranty, Ltd. ("Primus Guaranty" or "the Company") (OTC PINK:PRSG) today announced its financial results for the fourth quarter and full year ended December 31, 2012.

  • GAAP net income available to common shares for the fourth quarter 2012 was $59.5 million, or $2.23 per diluted share, compared with GAAP net income available to common shares of $100.5 million, or $2.84 per diluted share, for the fourth quarter 2011.

  • GAAP net income available to common shares for the full year 2012 was $432.4 million, or $14.41 per diluted share, compared with a GAAP net loss available to common shares of $(36.8) million, or $(1.00) per diluted share, for the full year 2011. GAAP net income from continuing operations for the full year 2012 primarily was attributable to net credit swap revenue of $439.0 million, which included unrealized gains in the fair value of Primus Financial Products, LLC ("Primus Financial")'s credit swap portfolio of $415.0 million. GAAP net loss from continuing operations for the full year 2011 primarily was attributable to net credit swap revenue of $(39.0) million, which included unrealized losses in the fair value of Primus Financial's credit swap portfolio of $(64.8) million.

  • Economic Results for the fourth quarter 2012 were $6.3 million, or $0.25 per diluted share. Economic Results for the full year 2012 were $24.4 million, or $0.93 per diluted share. The primary difference between GAAP net income and Economic Results is that changes in the fair value of Primus Financial's credit swap portfolio are not included in Economic Results. Economic Results for the fourth quarter 2011 were $12.4 million, or $0.35 per diluted share. Economic Results for the full year 2011 were $36.8 million, or $1.00 per diluted share.

  • GAAP book value per common share was $8.83 at December 31, 2012, compared with GAAP book value per common share of $(4.18) at December 31, 2011.

  • Economic Results book value per common share was $10.19 at December 31, 2012, compared with Economic Results book value per common share of $8.60 at December 31, 2011.

  • At December 31, 2012, the notional principal of Primus Financial's consolidated credit swap portfolio totaled $4.1 billion, compared with $8.1 billion at December 31, 2011.

Buyback Update


In the fourth quarter of 2012, Primus Guaranty purchased approximately 1.3 million of its common shares for an aggregate cost of approximately $10.5 million.

During the fourth quarter of 2012, Primus Financial purchased $19.1 million (face value) of its Subordinated Deferrable Interest Notes at a cost of approximately $17.8 million.

Subsequent Event

During the first quarter of 2013, Primus Financial redeemed the remaining $57.7 million (face value) of its Subordinated Deferrable Interest Notes at par.

Additional Information

A copy of this press release, the Company's financial supplement, and details on Primus Financial's credit swap portfolio as of December 31, 2012, are available in the Investor Relations section of the Company's Web site at www.primusguaranty.com. Also available on the Web site is a letter dated February 14, 2013 to the shareholders from Richard Claiden, Chief Executive Officer, and separately, a communication with certain important U.S. tax considerations for shareholders and investors.

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 reference entities. Its common shares trade on the OTC Pink Tier of the OTC market. Investors can find 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)

December 31,

December 31,

2012

2011

Assets

Cash and cash equivalents

$

51,860

$

87,247

Investments (includes $213,107 and $341,485 at fair value as of December 31, 2012 and December 31, 2011, respectively)

213,107

341,656

Restricted cash and investments

144,077

137,759

Accrued interest and premiums

3,210

5,725

Unrealized gain on credit swaps, at fair value

721

-

Debt issuance costs, net

510

3,444

Other assets (includes $2,701 and $7,424 at fair value as of December 31, 2012 and December 31, 2011, respectively)

4,019

9,993

Total assets

$

417,504

$

585,824

Liabilities and Equity (deficit)

Liabilities

Accounts payable and accrued expenses

$

5,202

$

5,847

Unrealized loss on credit swaps, at fair value

43,682

457,939

Payable for credit events

1,280

1,985

Long-term debt

57,700

172,334

Other liabilities

2,721

3,211

Total liabilities

$

110,585

$

641,316

Equity (deficit)

Common shares, $0.08 par value, 62,500,000 shares authorized, 26,125,564 and 34,838,420 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively

2,090

2,787

Additional paid-in capital

203,232

260,258

Accumulated other comprehensive income

2,723

1,086

Retained earnings (deficit)

22,619

(409,769

)

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

230,664

(145,638

)

Preferred securities of subsidiary

76,255

90,146

Total equity (deficit)

306,919

(55,492

)

Total liabilities and equity

$

417,504

$

585,824

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

Three Months Ended
December 31,

Year Ended
December 31,

2012

2011

2012

2011

Revenues

Net credit swap revenue (loss)

$

59,521

$

97,268

$

438,961

$

(39,029

)

Interest income

2,140

2,178

9,497

9,794

Gain on retirement of long-term debt

1,056

4,324

2,638

9,145

Other income

424

837

1,429

1,608

Total revenues

63,141

104,607

452,525

(18,482

)

Expenses

Compensation and employee benefits

1,797

1,392

7,117

6,527

Professional and legal fees

344

517

1,501

2,719

Interest expense

638

1,440

9,587

5,998

Other

1,061

769

3,497

4,156

Total expenses

3,840

4,118

21,702

19,400

Income (loss) from continuing operations before provision

(benefit) for income taxes

59,301

100,489

430,823

(37,882

)

Provision (benefit) for income taxes

-

5

97

16

Income (loss) from continuing operations, net of tax

59,301

100,484

430,726

(37,898

)

Income (loss) from discontinued operations, net of tax

830

676

4,388

4,133

Net income (loss)

60,131

101,160

435,114

(33,765

)

Less:

Distributions on preferred securities of subsidiary

595

692

2,726

3,035

Net income (loss) available to common shares

$

59,536

$

100,468

$

432,388

$

(36,800

)

Income (loss) per common share:

Basic:

Income (loss) from continuing operations

$

2.21

$

2.84

$

14.30

$

(1.11

)

Income (loss) from discontinued operations

$

0.03

$

0.02

$

0.15

$

0.11

Net income (loss) available to common shares

$

2.24

$

2.86

$

14.45

$

(1.00

)

Diluted:

Income (loss) from continuing operations

$

2.20

$

2.82

$

14.26

$

(1.11

)

Income (loss) from discontinued operations

$

0.03

$

0.02

$

0.15

$

0.11

Net income (loss) available to common shares

$

2.23

$

2.84

$

14.41

$

(1.00

)

Weighted average common shares outstanding:

Basic

26,766

35,163

30,189

36,849

Diluted

26,849

35,430

30,277

36,849

Note: Basic and diluted net income (loss) available to common shares for the year ended December 31, 2012 includes the impact of a $3.8 million gain that resulted from the purchase of $14.1 million (face value) Primus Financial preferred securities.

Primus Guaranty, Ltd.

Regulation G and Other Disclosure

Economic Results

December 31, 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 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.

Economic Results per GAAP Diluted Share

(in 000's except per share amounts)

Three Months Ended

December 31,

Year Ended

December 31,

2012

2011

2012

2011

GAAP Net income (loss) available to common shares

$

59,536

$

100,468

$

432,388

$

(36,800

)

Adjustments:

Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial

(54,479

)

(88,327

)

(414,978

)

64,781

Amortization of realized gains from the early termination of credit swaps sold by Primus Financial

2

23

7

117

Provision for CDS on ABS credit events

(79

)

(39

)

(667

)

(1,437

)

Reduction in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps

1,297

292

7,631

10,133

Economic Results

$

6,277

$

12,417

$

24,381

$

36,794

Economic Results earnings (loss) per GAAP diluted share

$

0.25

$

0.35

$

0.93

$

1.00

Economic Results weighted average common shares - GAAP diluted