PRIMUS GUARANTY, LTD. REPORTS SECOND QUARTER 2010 FINANCIAL RESULTS
August 12, 2010
Hamilton, Bermuda – August 12, 2010 – Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”) (NYSE:PRS) today announced its financial results for the second quarter ended June 30, 2010.
§ GAAP net loss available to common shares for the second quarter 2010 was $188.4 million, or $4.84 per diluted share, compared with GAAP net income available to common shares of $596.9 million, or $14.46 per diluted share, for the second quarter 2009. GAAP net loss available to common shares for the second quarter 2010 was primarily attributable to a net unrealized mark-to-market loss of $194.8 million on Primus Financial Products, LLC (“Primus Financial”)’s consolidated credit swap portfolio.
§ Economic Results for the second quarter 2010 were $6.8 million, or $0.18 per diluted share, and include $15.3 million of premium income, $5.5 million of asset management fees, $10.1 million of net realized losses from credit mitigation activities within Primus Financial’s portfolio of credit swaps and $2.7 million of gains from retirement of long-term debt. Economic Results for the second quarter 2009 were $47.5 million, or $1.15 per diluted share, and include $22.2 million of premium income, $0.4 million of asset management fees and $33.2 million of gains from retirement of long-term debt.
§ Economic Results book value per common share was $7.55 at June 30, 2010, compared with Economic Results book value per common share of $7.30 at March 31, 2010 and $8.48 at December 31, 2009.
§ Primus Asset Management (“PAM”) managed Primus Financial, other structured credit vehicles and funds totaling $17.4 billion at June 30, 2010, including $3.3 billion of third-party assets. At June 30, 2010, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $14.1 billion. At June 30, 2009, PAM managed Primus Financial and other structured credit vehicles totaling $22.8 billion, including $1.5 billion of third-party assets. At June 30, 2009, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $21.3 billion.
Buyback Authorization
Today, the Company announces that its Board of Directors has authorized an additional expenditure of up to $5 million of available cash for the purchase of the Company’s common shares and/or 7% Senior Notes. Purchases will be made at management’s discretion. The total authorized capacity for buybacks of the Company’s common shares and/or 7% Senior Notes is $45 million, of which approximately $12.7 million is currently available under the buyback program, including the additional $5 million authorization.
Strategy Update
During the second quarter 2010, the Company retained Berkshire Capital Securities LLC, a leading investment bank in the asset management field, to advise on strategic alternatives for the Company’s asset management business. The Company expects this process to be completed by the end of 2010.
Consolidation of CLOs under Management
Effective January 1, 2010, the Company adopted ASC Topic 810, Consolidation, which required it to consolidate the assets, liabilities, revenues and expenses of the collateralized loan obligations (“CLOs”) under its management. Although these CLOs are consolidated, the assets of the CLOs are not available to the Company for general operations or in satisfaction of the Company’s debt obligations. The Company does not have any rights to or ownership of these assets. Similarly, the Company does not have any obligation to settle the liabilities of the CLOs. The Company has no contractual obligation to fund or provide other financial support to any CLO. As a result of the adoption of ASC Topic 810, Consolidation, the Company established an “appropriated retained earnings from CLO consolidation” account in the equity section of the condensed consolidated statement of financial condition as required under the standard.
CypressTree Awards
The Company granted equity awards to employees of CypressTree Investment Management, LLP who joined Primus in connection with its previously announced acquisition of CypressTree on July 9, 2009. The awards, which consist of a total 378,000 restricted share units of common shares of Primus Guaranty, were made to ten non-executive employees concurrently with the closing of the CypressTree acquisition. One-third of the awards vested on July 9, 2010 and the remaining awards will vest on each of the second and third anniversaries of the transaction closing date.
Earnings
A copy of this press release and the financial supplement, including additional credit swap portfolio and historical data, will be 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 to the shareholders from the Company’s Chief Executive Officer, which discusses the Company’s performance, key strategic developments and other issues.
Economic Results
- 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 of credit swaps is included in Economic Results.
Economic Results includes realized and unrealized gains and losses on credit swap transactions undertaken by the Primus Absolute Return Credit Fund. The Company believes that quarterly fluctuations in the fair market value of Primus Financial’s 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 operations in New York, Boston and London. Through its subsidiaries, the company is a leading manager of corporate credit assets and provider of credit protection. Primus manages assets in structured credit funds and operating companies, across a range of asset classes – including investment grade, high yield and leveraged loans – using both cash and synthetic instruments.
Safe Harbor Statement
Some of the statements included in this press release and other statements Primus Guaranty may make, particularly those anticipating future financial performance, business prospects, growth and operating strategies, market performance, valuations and similar matters, are forward-looking statements that involve a number of assumptions, risks and uncertainties, which change over time. For those statements, Primus Guaranty claims the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. 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.