PRIMUS GUARANTY, LTD. REPORTS FIRST QUARTER 2010 GAAP NET INCOME AVAILABLE TO COMMON SHARES OF $86.5 MILLION AND ECONOMIC RESULTS LOSS OF $40.9 MILLION
May 13, 2010
Hamilton, Bermuda - May 13, 2010 – Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”) (NYSE:PRS) today announced its financial results for the first quarter ended March 31, 2010.
§ GAAP net income available to common shares for the first quarter 2010 was $86.5 million, or $2.15 per diluted share, compared with GAAP net income available to common shares of $106.8 million, or $2.61 per diluted share, for the first quarter 2009. GAAP net income available to common shares for the first quarter 2010 was driven by a net unrealized mark-to-market gain of $127.1 million on Primus Financial Products, LLC (“Primus Financial”)’s consolidated credit swap portfolio.
§ Economic Results for the first quarter 2010 was a loss of $40.9 million, or $1.01 per diluted share, compared with an Economic Results loss of $6.1 million, or $0.15 per diluted share, for the first quarter 2009. Economic Results for the first quarter 2010 was primarily a result of net realized losses within Primus Financial’s portfolio of credit swaps from credit mitigation activities of $19.2 million and a portfolio repositioning transaction payment of $35.0 million. Although these payments have an immediate negative impact on the Company’s quarterly Economic Results, management expects these risk reducing activities will help preserve the long-term value of Primus Financial’s consolidated credit swap portfolio for shareholders.
§ Economic Results book value per common share was $7.30 at March 31, 2010, compared with Economic Results book value per common share of $8.48 at December 31, 2009.
§ Primus Asset Management managed structured credit vehicles totaling $19.9 billion at March 31, 2010, including $3.5 billion of third-party assets. At March 31, 2010, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $16.4 billion.
Other Matters – 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.
Primus Guaranty will host a conference call on Thursday, May 13, 2010, at 11 a.m. Eastern Time to discuss its first quarter 2010 financial results. 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, located at www.primusguaranty.com, prior to the call.
The conference call will be available via live or archived webcast at http://ir.primusguaranty.com/ or by dialing 866.770.7125 (domestic)/ 617.213.8066 (international), Passcode 82503893.
A replay of the call will be available from Thursday, May 13, 2010, at 2 p.m. Eastern Time until Thursday, June 3, 2010, at 5 p.m. Eastern Time. To listen to the replay, dial 888.286.8010 (domestic) or 617.801.6888 (international), Passcode 48589447.
Economic Results
In managing its business and assessing its growth and profitability from a strategic and financial planning perspective, the Company believes it is appropriate to consider both its U.S. GAAP net income available to common shares as well as certain non-GAAP financial measures called "Economic Results". Economic Results evaluates what the Company’s GAAP net income available to common shares would have been if it excluded from GAAP net income available to common shares (1) the amounts of any unrealized gains and losses on Primus Financial’s consolidated portfolio of credit swaps sold and (2) any realized gains from terminations of credit swaps sold prior to maturity (although Primus Financial amortizes those gains over the remaining original lives of the terminated contracts, except for credit swaps undertaken to offset credit risk). Economic Results also includes provisions for credit events caused by downgrades below CCC/Caa2 (S&P/Moody's) on CDS on ABS. The Company believes that quarterly fluctuations in the fair market value of Primus Financial’s CDS portfolio have little or no effect on the Company's 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.