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, 2011.
- GAAP net income available to common shares for the fourth quarter 2011 was $100.5 million, or $2.84 per diluted share, compared with GAAP net income available to common shares of $128.3 million, or $3.30 per diluted share, for the fourth quarter 2010. GAAP net income available to common shares for the fourth quarter 2011 substantially resulted from a net unrealized mark-to-market gain of $88.3 million on Primus Financial Products, LLC (“Primus Financial”)’s credit swap portfolio.
- GAAP net loss available to common shares for the full year 2011 was $(36.8) million, or $(1.00) per diluted share, compared with GAAP net income available to common shares of $255.5 million, or $6.33 per diluted share, for the full year 2010. 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. GAAP net income from continuing operations for the full year 2010 primarily was attributable to net credit swap revenue of $267.8 million, which included unrealized gains in the fair value of Primus Financial’s credit swap portfolio of $296.5 million.
- 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. 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 2010 were $(4.8) million, or $(0.12) per diluted share. Economic Results for the full year 2010 were $(40.8) million, or $(1.01) per diluted share.
- Economic Results book value per common share was $8.60 at December 31, 2011, compared with Economic Results book value per common share of $7.31 at December 31, 2010.
- At December 31, 2011, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $8.1 billion.
Other Information
Effective December 27, 2011, Primus Guaranty’s counterparty exercised its right to terminate the $75 million notional principal interest rate swap.
Earnings
A copy of this press release, the financial supplement and details on Primus Financial Products, LLC’s credit swap portfolio as of December 31, 2011, 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 16, 2012 to the shareholders from Richard Claiden, Chief Executive Officer.
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 from time to time in the Company's SEC reports, including, but not limited to, Primus Guaranty's Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission.
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Primus Guaranty, Ltd. Condensed Consolidated Statements of Financial Condition (Unaudited) (in thousands except share amounts) |
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| December 31, | ||||||||||||
| 2011 | 2010 | |||||||||||
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Assets |
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| Cash and cash equivalents | $ | 87,247 | $ | 177,736 | ||||||||
| Investments (includes $341,485 and $288,815 at fair value | ||||||||||||
| as of December 31, 2011 and 2010, respectively) | 341,656 | 288,985 | ||||||||||
| Restricted cash and investments | 137,759 | 138,540 | ||||||||||
| Accrued interest and premiums | 5,725 | 5,860 | ||||||||||
| Unrealized gain on credit swaps, at fair value | - | 2,006 | ||||||||||
| Debt issuance costs, net | 3,444 | 4,072 | ||||||||||
| Other assets (includes $7,424 and $11,559 at fair value as of | ||||||||||||
| December 31, 2011 and 2010, respectively) | 9,993 | 17,660 | ||||||||||
| Total assets | $ | 585,824 | $ | 634,859 | ||||||||
| Liabilities and Equity (deficit) | ||||||||||||
| Liabilities | ||||||||||||
| Accounts payable and accrued expenses | $ | 5,847 | $ | 8,701 | ||||||||
| Unrealized loss on credit swaps, at fair value | 457,939 | 395,164 | ||||||||||
| Payable for credit events | 1,985 | 3,447 | ||||||||||
| Long-term debt | 172,334 | 215,828 | ||||||||||
| Restructuring liabilities | 36 | 3,729 | ||||||||||
| Other liabilities | 3,175 | 6,025 | ||||||||||
| Total liabilities | $ | 641,316 | $ | 632,894 | ||||||||
| Equity (deficit) | ||||||||||||
| Common shares, $0.08 par value, 62,500,000 shares | ||||||||||||
| authorized, 34,838,420 and 38,078,790 shares issued and | ||||||||||||
| outstanding at December 31, 2011 and 2010, respectively | 2,787 | 3,046 | ||||||||||
| Additional paid-in capital | 260,258 | 275,453 | ||||||||||
| Accumulated other comprehensive income | 1,086 | 3,333 | ||||||||||
| Retained earnings (deficit) | (409,769 | ) | (372,969 | ) | ||||||||
| Total shareholders’ equity (deficit) of Primus Guaranty, Ltd | (145,638 | ) | (91,137 | ) | ||||||||
| Preferred securities of subsidiary | 90,146 | 93,102 | ||||||||||
| Total equity (deficit) | (55,492 | ) | 1,965 | |||||||||
| Total liabilities and equity (deficit) | $ | 585,824 | $ | 634,859 | ||||||||
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Primus Guaranty, Ltd. Condensed Consolidated Statements of Operations (Unaudited) (in thousands except per share amounts) |
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Three Months Ended December 31, |
Year Ended
December 31, |
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| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
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Revenues |
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| Net credit swap revenue (loss) | $ | 97,268 | $ | 142,387 | $ | (39,029 | ) | $ | 267,756 | |||||||||||||
| Interest income | 2,178 | 3,226 | 9,794 | 13,140 | ||||||||||||||||||
| Gain on retirement of long-term debt | 4,324 | 1,681 | 9,145 | 9,866 | ||||||||||||||||||
| Other income | 837 | 746 | 1,608 | 3,391 | ||||||||||||||||||
| Total revenues | 104,607 | 148,040 | (18,482 | ) | 294,153 | |||||||||||||||||
| Expenses | ||||||||||||||||||||||
| Compensation and employee benefits | 1,392 | 5,488 | 6,527 | 18,650 | ||||||||||||||||||
| Professional and legal fees | 517 | 1,313 | 2,719 | 6,718 | ||||||||||||||||||
| Interest expense | 1,440 | 1,665 | 5,998 | 7,031 | ||||||||||||||||||
| Restructuring costs (credit) | (7 | ) | 7,956 | 635 | 8,108 | |||||||||||||||||
| Other | 776 | 1,575 | 3,521 | 6,774 | ||||||||||||||||||
| Total expenses | 4,118 | 17,997 | 19,400 | 47,281 | ||||||||||||||||||
| Income (loss) from continuing operations before provision | ||||||||||||||||||||||
| (benefit) for income taxes | 100,489 | 130,043 | (37,882 | ) | 246,872 | |||||||||||||||||
| Provision (benefit) for income taxes | 5 | (232 | ) | 16 | (134 | ) | ||||||||||||||||
| Income (loss) from continuing operations, net of tax | 100,484 | 130,275 | (37,898 | ) | 247,006 | |||||||||||||||||
| Income (loss) from discontinued operations, net of tax | 676 | (1,536 | ) | 4,133 | (49,544 | ) | ||||||||||||||||
| Net income (loss) | 101,160 | 128,739 | (33,765 | ) | 197,462 | |||||||||||||||||
| Less: | ||||||||||||||||||||||
| Distributions on preferred securities of subsidiary | 692 | 718 | 3,035 | 3,162 | ||||||||||||||||||
| Net loss from discontinued operations attributable to | ||||||||||||||||||||||
| non-parent interests in CLOs | - | (298 | ) | - | (61,174 | ) | ||||||||||||||||
| Net income (loss) available to common shares | $ | 100,468 | $ | 128,319 | $ | (36,800 | ) | $ | 255,474 | |||||||||||||
| Income (loss) per common share: | ||||||||||||||||||||||
| Basic: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 2.84 | $ | 3.43 | $ | (1.11 | ) | $ | 6.36 | |||||||||||||
| Income (loss) from discontinued operations | $ | 0.02 | $ | (0.03 | ) | $ | 0.11 | $ | 0.30 | |||||||||||||
| Net income (loss) available to common shares | $ | 2.86 | $ | 3.40 | $ | (1.00 | ) | $ | 6.66 | |||||||||||||
| Diluted: | ||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 2.82 | $ | 3.33 | $ | (1.11 | ) | $ | 6.04 | |||||||||||||
| Income (loss) from discontinued operations | $ | 0.02 | $ | (0.03 | ) | $ | 0.11 | $ | 0.29 | |||||||||||||
| Net income (loss) available to common shares | $ | 2.84 | $ | 3.30 | $ | (1.00 | ) | $ | 6.33 | |||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||
| Basic | 35,163 | 37,732 | 36,849 | 38,361 | ||||||||||||||||||
| Diluted | 35,430 | 38,905 | 36,849 | 40,366 | ||||||||||||||||||
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Primus Guaranty, Ltd. |
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| Regulation G and Other Disclosure | |
| Economic Results | |
| December 31, 2011 | |
| (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: | |
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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. |
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| 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 | |||||||||||||||||||||
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(in 000's except per share amounts)
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Three Months Ended
December 31, |
Year Ended
December 31, |
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| 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
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GAAP Net income (loss) available to common shares |
$ | 100,468 | $ | 128,319 | $ | (36,800 | ) | $ | 255,474 | ||||||||||||
| Adjustments: | |||||||||||||||||||||
| Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial | (88,327 | ) | (133,194 | ) | 64,781 | (296,540 | ) | ||||||||||||||
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Amortization of realized gains from the early termination of credit swaps sold by Primus Financial |
23 | 107 | 117 | 810 | |||||||||||||||||
| Provision for CDS on ABS credit events | (39 | ) | - | (1,437 | ) | (2,374 | ) | ||||||||||||||
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Reduction in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps |
292 | - | 10,133 | 1,819 | |||||||||||||||||
| Economic Results | $ | 12,417 | $ | (4,768 | ) | $ | 36,794 | $ | (40,811 | ) | |||||||||||
| Economic Results earnings (loss) per GAAP diluted share | $ | 0.35 | $ | (0.12 | ) | $ | 1.00 | $ | (1.01 | ) | |||||||||||
| Economic Results weighted average common shares - GAAP diluted | |||||||||||||||||||||
| 35,430 | 38,905 | 36,849 | 40,366 | ||||||||||||||||||
| Economic Results Book Value per Share | |||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||
| 2011 | 2010 | ||||||||||||||||||||
| GAAP Shareholders' equity (deficit) of Primus Guaranty, Ltd. | $ | (145,638 | ) | $ | (91,137 | ) | |||||||||||||||
| Adjustments: | |||||||||||||||||||||
| Accumulated other comprehensive (income) loss | (1,086 | ) | (3,333 | ) | |||||||||||||||||
| Unrealized fair value of credit swaps sold (gain) loss by Primus Financial | 457,939 | 393,158 | |||||||||||||||||||
| Realized gains from early termination of credit swaps sold by Primus Financial | (33,574 | ) | (33,574 | ) | |||||||||||||||||
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Amortized realized gains from the early termination of credit swaps sold by Primus Financial |
33,560 | 33,443 | |||||||||||||||||||
| Provision for CDS on ABS credit events | (70,228 | ) | (68,791 | ) | |||||||||||||||||
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Reduction in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps |
58,708 | 48,575 | |||||||||||||||||||
| Economic Results Shareholders' Equity | $ | 299,681 | $ | 278,341 | |||||||||||||||||
| Economic Results book value per share issued and outstanding | $ | 8.60 | $ | 7.31 | |||||||||||||||||
| GAAP book value per share issued and outstanding | $ | (4.18 | ) | $ | (2.39 | ) | |||||||||||||||
| Common shares issued and outstanding | 34,838 | 38,079 | |||||||||||||||||||
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Primus Guaranty, Ltd. |
| GAAP Net Credit Swap Revenue (Loss) |
| December 31, 2011 |
| (Unaudited) |
| GAAP Net Credit Swap Revenue (Loss) | ||||||||||||||||||||||
| (in 000's) |
Three Months Ended
December 31, |
Year Ended
December 31, |
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| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
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Net credit swap revenue (loss) components |
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| Credit swaps sold - single name (Primus Financial) | ||||||||||||||||||||||
| Net premium income | $ | 5,590 | $ | 8,798 | $ | 26,088 | $ | 43,784 | ||||||||||||||
| Realized gains | - | - | - | - | ||||||||||||||||||
| Realized losses | - | - | (652 | ) | (40,002 | ) | ||||||||||||||||
| Change in unrealized gains/(losses) | 31,567 | 28,072 | 48,922 | 108,053 | ||||||||||||||||||
| Credit swaps sold - tranches (Primus Financial) | ||||||||||||||||||||||
| Net premium income | 3,607 | 3,615 | 14,269 | 14,304 | ||||||||||||||||||
| Realized gains | - | - | - | - | ||||||||||||||||||
| Realized losses | - | (6,683 | ) | (4,032 | ) | (41,683 | ) | |||||||||||||||
| Change in unrealized gains/(losses) | 56,862 | 108,542 | (123,297 | ) | 180,892 | |||||||||||||||||
| Credit swaps undertaken to offset credit risk (Primus Financial) | ||||||||||||||||||||||
| Net premium income (expense) | - | (14 | ) | (101 | ) | |||||||||||||||||
| Net realized gains (losses) | - | 3,656 | 47 | (299 | ) | |||||||||||||||||
| Change in unrealized gains/(losses) | - | (2,801 | ) | (59 | ) | 1,669 | ||||||||||||||||
| Credit swaps sold - ABS (Primus Financial) | ||||||||||||||||||||||
| Net premium income | 36 | 56 | 165 | 268 | ||||||||||||||||||
| Realized gains | - | - | - | |||||||||||||||||||
| Realized losses | (292 | ) | - | (10,133 | ) | (4,597 | ) | |||||||||||||||
| Change in unrealized gains/(losses) | (102 | ) | (619 | ) | 9,653 | 5,926 | ||||||||||||||||
| Net credit swaps (PARC fund) | - | (235 | ) | - | (458 | ) | ||||||||||||||||
| Net credit swap revenue (loss) | $ | 97,268 | $ | 142,387 | $ | (39,029 | ) | $ | 267,756 | |||||||||||||