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, 2013.
- GAAP net income available to common shares for the third quarter 2013 was $12.2 million, or $0.53 per diluted share, compared with GAAP net income available to common shares of $108.2 million, or $3.84 per diluted share, for the third quarter 2012. GAAP net income available to common shares for the third quarter 2013 substantially resulted from a net unrealized mark-to-market gain of $9.2 million on Primus Financial Products, LLC (“Primus Financial”)'s credit swap portfolio.
- Economic Results for the third quarter 2013 were $3.0 million, or $0.13 per diluted share, compared with Economic Results of $3.5 million, or $0.12 per diluted share, for the third quarter 2012. 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.
- GAAP book value per common share was $10.67 at September 30, 2013, compared with GAAP book value per common share of $8.83 at December 31, 2012.
- Economic Results book value per common share was $10.69 at September 30, 2013, compared with Economic Results book value per common share of $10.19 at December 31, 2012.
- Primus Financial’s remaining single name credit swaps matured in the third quarter of 2013.
- At September 30, 2013, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $3.3 billion, compared with $4.1 billion at December 31, 2012.
Plan of Tax Liquidation, Distribution Authorization and PFIC Matters
The Company’s Board of Directors has adopted a Plan of Liquidation for U.S. Federal Income Tax Purposes (the “Plan of Tax Liquidation”) as the Company continues to implement its strategy of, among other things, seeking to return capital to shareholders.
Under the Plan of Tax Liquidation, the Board of Directors has declared a distribution of $2.00 per common share, payable December 11, 2013 to shareholders of record at the close of business on November 13, 2013. The aggregate distribution will total approximately $43.6 million based on 21,786,406 common shares outstanding on November 7, 2013. The Company believes that this distribution will be treated as a return of capital to a shareholder, to the extent of the shareholder’s tax basis in its shares, and thereafter as a capital gain, for U.S. federal tax purposes.
By adopting the Plan of Tax Liquidation, the Company has taken no action to commence the winding up and/or liquidation of the Company under its Bye-Laws, the Bermuda Companies Act 1981, or any other Bermuda law.
The Company believes that it is a “passive foreign investment company,” or PFIC, for U.S federal income tax purposes, and urges all shareholders to consult their own tax advisors concerning their particular circumstances and the U.S. federal tax treatment of this distribution as well as their further acquisition, ownership, or disposition of the Company’s common shares. Further information regarding the Company’s PFIC status is available on the Investor Relations page of the Company’s Web site at www.primusguaranty.com. The Company notes also that shareholders resident in the United States who own 1 percent or more of the Company’s common shares may have additional tax reporting to the U.S. Internal Revenue Service and accordingly such persons should consult their own tax advisors.
Given the reduction in the number of common shares outstanding and the projected maturities of Primus Financial’s credit swaps in 2013 and particularly 2014, the Company anticipates an increase in PFIC income per common share.
Additional Information
A copy of this press release, the Company’s financial supplement and a letter dated November 8, 2013 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; and
- A net adjustment in provision for credit default swaps on asset-backed securities (“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, distributions 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.
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Primus Guaranty, Ltd. |
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| September 30, | December 31, | |||||||||
| 2013 | 2012 | |||||||||
| Assets | ||||||||||
| Cash and cash equivalents | $ | 43,066 | $ | 51,860 | ||||||
| Investments, at fair value | 94,651 | 213,107 | ||||||||
| Restricted cash and investments | 105,707 | 144,077 | ||||||||
| Accrued interest and premiums | 1,918 | 3,210 | ||||||||
| Unrealized gain on credit swaps, at fair value | 962 | 721 | ||||||||
| Debt issuance costs, net | - | 510 | ||||||||
| Other assets (includes $1,054 and $2,701 at fair value as of | ||||||||||
| September 30, 2013 and December 31, 2012, respectively) | 1,709 | 4,019 | ||||||||
| Total assets | $ | 248,013 | $ | 417,504 | ||||||
| Liabilities and Equity | ||||||||||
| Liabilities | ||||||||||
| Accounts payable and accrued expenses | $ | 3,860 | $ | 5,202 | ||||||
| Unrealized loss on credit swaps, at fair value | 6,548 | 43,682 | ||||||||
| Payable for credit events | - | 1,280 | ||||||||
| Long-term debt | - | 57,700 | ||||||||
| Other liabilities (includes $1,317 and $2,205 at fair value as of | ||||||||||
| September 30, 2013 and December 31, 2012, respectively) | 1,641 | 2,721 | ||||||||
| Total liabilities | $ | 12,049 | $ | 110,585 | ||||||
| Equity | ||||||||||
| Common shares, $0.08 par value, 62,500,000 shares authorized, | ||||||||||
| 22,115,308 and 26,125,564 shares issued and outstanding | ||||||||||
| at September 30, 2013 and December 31, 2012, respectively | 1,769 | 2,090 | ||||||||
| Additional paid-in capital | 163,382 | 203,232 | ||||||||
| Accumulated other comprehensive income | 726 | 2,723 | ||||||||
| Retained earnings | 70,087 | 22,619 | ||||||||
| Total shareholders’ equity of Primus Guaranty, Ltd | 235,964 | 230,664 | ||||||||
| Preferred securities of subsidiary | - | 76,255 | ||||||||
| Total equity | 235,964 | 306,919 | ||||||||
| Total liabilities and equity | $ | 248,013 | $ | 417,504 | ||||||
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Primus Guaranty, Ltd. |
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Three Months Ended |
Nine Months Ended |
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| 2013 | 2012 | 2013 | 2012 | ||||||||||||||||
| Revenues | |||||||||||||||||||
| Net credit swap revenue | $ | 12,516 | $ | 112,500 | $ | 49,348 | $ | 379,440 | |||||||||||
| Interest income | 932 | 2,308 | 3,792 | 7,357 | |||||||||||||||
| Gain on retirement of long-term debt | - | 157 | - | 1,582 | |||||||||||||||
| Other income | 237 | 815 | 1,639 | 1,005 | |||||||||||||||
| Total revenues | 13,685 | 115,780 | 54,779 | 389,384 | |||||||||||||||
| Expenses | |||||||||||||||||||
| Compensation and employee benefits | 707 | 1,489 | 3,045 | 5,320 | |||||||||||||||
| Professional and legal fees | 359 | 359 | 1,008 | 1,157 | |||||||||||||||
| Interest expense | - | 4,405 | 692 | 8,949 | |||||||||||||||
| Other | 478 | 715 | 1,473 | 2,436 | |||||||||||||||
| Total expenses | 1,544 | 6,968 | 6,218 | 17,862 | |||||||||||||||
| Income from continuing operations before provision | |||||||||||||||||||
| for income taxes | 12,141 | 108,812 | 48,561 | 371,522 | |||||||||||||||
| Provision for income taxes | - | 75 | 19 | 97 | |||||||||||||||
| Income from continuing operations, net of tax | 12,141 | 108,737 | 48,542 | 371,425 | |||||||||||||||
| Income from discontinued operations, net of tax | 38 | 52 | 276 | 3,558 | |||||||||||||||
| Net income | 12,179 | 108,789 | 48,818 | 374,983 | |||||||||||||||
| Less: | |||||||||||||||||||
| Distributions on preferred securities of subsidiary | - | 601 | 1,350 | 2,131 | |||||||||||||||
| Net income available to common shares | $ | 12,179 | $ | 108,188 | $ | 47,468 | $ | 372,852 | |||||||||||
| Income per common share: | |||||||||||||||||||
| Basic: | |||||||||||||||||||
| Income from continuing operations | $ | 0.53 | $ | 3.85 | $ | 1.90 | $ | 11.90 | |||||||||||
| Income from discontinued operations | $ | - | $ | - | $ | 0.01 | $ | 0.11 | |||||||||||
| Net income available to common shares | $ | 0.53 | $ | 3.85 | $ | 1.91 | $ | 12.01 | |||||||||||
| Diluted: | |||||||||||||||||||
| Income from continuing operations | $ | 0.53 | $ | 3.84 | $ | 1.90 | $ | 11.87 | |||||||||||
| Income from discontinued operations | $ | - | $ | - | $ | 0.01 | $ | 0.11 | |||||||||||
| Net income available to common shares | $ | 0.53 | $ | 3.84 | $ | 1.91 | $ | 11.98 | |||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||
| Basic | 23,121 | 28,120 | 24,791 | 31,330 | |||||||||||||||
| Diluted | 23,122 | 28,189 | 24,797 | 31,403 | |||||||||||||||
Note: Basic and diluted net income 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, 2013
(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; and
- A net adjustment 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 |
Nine Months Ended |
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| 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
| GAAP Net income available to common shares | $ | 12,179 | $ | 108,188 | $ | 47,468 | $ | 372,852 | |||||||||||||
| Adjustments: | |||||||||||||||||||||
| Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial | (9,163 | ) | (108,110 | ) | (37,375 | ) | (360,499 | ) | |||||||||||||
| Amortization of realized gains from the early termination of credit swaps sold by Primus Financial | 1 | 1 | 5 | 5 | |||||||||||||||||
| Net adjustment in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps | - | 3,389 | 73 | 5,746 | |||||||||||||||||
| Economic Results | $ | 3,017 | $ | 3,468 | $ | 10,171 | $ | 18,104 | |||||||||||||
| Economic Results earnings per GAAP diluted share | $ | 0.13 | $ | 0.12 | $ | 0.41 | $ | 0.69 | |||||||||||||
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Economic Results weighted average common shares - GAAP diluted |
23,122 | 28,189 | 24,797 | 31,403 | |||||||||||||||||
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Note: Economic Results earnings per GAAP diluted share for the nine months ended September 30, 2012 includes the impact of a $3.5 million gain that resulted from the |
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purchase of $12.2 million (face value) Primus Financial preferred securities. |
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| Economic Results Book Value per Share | |||||||||||||||||||||
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| September 30, | December 31, | ||||||||||||||||||||
| 2013 | 2012 | ||||||||||||||||||||
| GAAP Shareholders' equity of Primus Guaranty, Ltd. | $ | 235,964 | $ | 230,664 | |||||||||||||||||
| Adjustments: | |||||||||||||||||||||
| Accumulated other comprehensive (income) loss | (726 | ) | (2,723 | ) | |||||||||||||||||
| Unrealized fair value of credit swaps sold (gain) loss by Primus Financial | 5,586 | 42,961 | |||||||||||||||||||
| 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 | 33,572 | 33,567 | |||||||||||||||||||
| Provision for CDS on ABS credit events | (4,483 | ) | (4,556 | ) | |||||||||||||||||
| Economic Results Shareholders' Equity | $ | 236,339 | $ | 266,339 | |||||||||||||||||
| Economic Results book value per share issued and outstanding | $ | 10.69 | $ | 10.19 | |||||||||||||||||
| GAAP book value per share issued and outstanding | $ | 10.67 | $ | 8.83 | |||||||||||||||||
| Common shares issued and outstanding | 22,115 | 26,126 | |||||||||||||||||||
