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Primus Guaranty, Ltd. Reports Third Quarter 2012 Results

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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 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

September 30,

Nine Months Ended

September 30,

  2012     2011     2012     2011  
GAAP Net income (loss) available to common shares $ 108,188 $ (283,105 ) $ 372,852 $ (137,268 )
Adjustments:
Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial (108,110 ) 293,298 (360,499 ) 153,108
 
Amortization of realized gains from the early termination of credit swaps sold by Primus Financial 1 25 5 94
Provision for CDS on ABS credit events (220 ) - (588 ) (1,398 )
Reduction in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps     3,609       -     6,334       9,841  
Economic Results   $ 3,468     $ 10,218   $ 18,104     $ 24,377  
 
Economic Results earnings (loss) per GAAP diluted share $ 0.12 $ 0.28 $ 0.69 $ 0.65
Economic Results weighted average common shares - GAAP diluted
28,189 36,470 31,403 37,411
 

 

       
Economic Results Book Value per Share              
 
September 30,
2012
December 31,
2011
 
GAAP Shareholders' equity (deficit) of Primus Guaranty, Ltd. $ 181,434 $ (145,638 )
Adjustments:
 
Accumulated other comprehensive (income) loss (3,255 ) (1,086 )
Unrealized fair value of credit swaps sold (gain) loss by Primus Financial 97,440 457,939
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

33,565 33,560
Provision for CDS on ABS credit events (70,816 ) (70,228 )

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

  65,042       58,708  
Economic Results Shareholders' Equity   $ 269,836     $ 299,681  
 
Economic Results book value per share issued and outstanding $ 9.85 $ 8.60
 
GAAP book value per share issued and outstanding $ 6.62 $ (4.18 )
 
Common shares issued and outstanding 27,406 34,838
 

Note: Economic Results earnings (loss) 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 purchase of $12.2 million (face value) Primus Financial preferred securities.

Primus Guaranty, Ltd.                        
GAAP Net Credit Swap Revenue (Loss)
September 30, 2012
(Unaudited)
 
 
                                 
GAAP Net Credit Swap Revenue (Loss)                                
 
(in 000's) Three Months Ended

September 30,

Nine Months Ended

September 30,

2012 2011 2012 2011
Net credit swap revenue (loss) components
Credit swaps sold - single name
Net premium income $ 4,361 $ 6,241 $ 14,437 $ 20,498
Realized gains - - - -
Realized losses - - - (652 )
Change in unrealized gains/(losses) 8,215 (24,704 ) 28,082 17,355
Credit swaps sold - tranches
Net premium income 3,610 3,607 10,746 10,662
Realized gains - - - -
Realized losses - - - (4,032 )
Change in unrealized gains/(losses) 96,608 (268,978 ) 326,571 (180,159 )
Credit swaps undertaken to offset credit risk
Net premium income (expense) - - - -
Net realized gains (losses) - - - 47
Change in unrealized gains/(losses) - - - (59 )
Credit swaps sold - ABS
Net premium income 28 46 92 129
Realized gains - - - -
Realized losses (3,609 ) - (6,334 ) (9,841 )
Change in unrealized gains/(losses)   3,287     384     5,846     9,755  
Net credit swap revenue (loss) $ 112,500   $ (283,404 ) $ 379,440   $ (136,297 )

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

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