Primus Guaranty, Ltd. Reports Fourth Quarter and Full Year 2011 Results

HAMILTON, Bermuda--()--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.

     

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(in thousands except share amounts)

 
  December 31,
2011     2010
 

Assets

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  
 
       

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

 

Three Months Ended

December 31,

    Year Ended

December 31,

2011     2010 2011     2010
 

Revenues

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
 

Primus Guaranty, Ltd.

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:
 
 

 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,

2011 2010 2011 2010

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 )
 

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 )

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 )

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 )

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
 
 

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,

2011 2010 2011 2010

Net credit swap revenue (loss) components

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  
 

Contacts

Primus Guaranty, Ltd.
Nicole Stansell, 212-697-1992
investorrelations@primusguaranty.com

Contacts

Primus Guaranty, Ltd.
Nicole Stansell, 212-697-1992
investorrelations@primusguaranty.com