PRIMUS

PRIMUS

First Quarter 2013

HAMILTON, Bermuda--(BUSINESS WIRE)--May. 6, 2013-- Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”) (OTC PINK: PRSG) today announced its financial results for the first quarter ended March 31, 2013.

  • GAAP net income available to common shares for the first quarter 2013 was $18.9 million, or $0.72 per diluted share, compared with GAAP net income available to common shares of $263.0 million, or $7.72 per diluted share, for the first quarter 2012. GAAP net income available to common shares for the first quarter 2013 substantially resulted from a net unrealized mark-to-market gain of $16.0 million on Primus Financial Products, LLC (“Primus Financial”)’s credit swap portfolio.
  • Economic Results for the first quarter 2013 were $3.0 million, or $0.12 per diluted share, compared with Economic Results of $5.5 million, or $0.26 per diluted share, for the first 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 $9.50 at March 31, 2013, compared with GAAP book value per common share of $8.83 at December 31, 2012.
  • Economic Results book value per common share was $10.29 at March 31, 2013, compared with Economic Results book value per common share of $10.19 at December 31, 2012.
  • At March 31, 2013, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $3.5 billion, compared with $4.1 billion at December 31, 2012.
  • During the first quarter of 2013, Primus Financial redeemed the remaining $57.7 million (face value) of its Subordinated Deferrable Interest Notes at par.

Additional Information

A copy of this press release, the Company’s financial supplement and the 2012 Audited Financial Statements 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 May 6, 2013 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 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 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.

       

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(in thousands except share amounts)

 
March 31, December 31,
2013 2012
 
Assets
Cash and cash equivalents $ 85,838 $ 51,860
Investments, at fair value 157,734 213,107
Restricted cash and investments 103,923 144,077
Accrued interest and premiums 2,720 3,210
Unrealized gain on credit swaps, at fair value 71 721
Debt issuance costs, net - 510
Other assets (includes $2,389 and $2,701 at fair value as of
March 31, 2013 and December 31, 2012, respectively)   8,443   4,019
Total assets $ 358,729 $ 417,504
 
Liabilities and Equity
Liabilities
Accounts payable and accrued expenses $ 3,727 $ 5,202
Unrealized loss on credit swaps, at fair value 27,075 43,682
Payable for credit events 840 1,280
Long-term debt - 57,700
Other liabilities (includes $2,315 and $2,205 at fair value as of
March 31, 2013 and December 31, 2012, respectively)   2,700   2,721
Total liabilities $ 34,342 $ 110,585
 
Equity
Common shares, $0.08 par value, 62,500,000 shares authorized,
26,125,564 shares issued and outstanding 2,090 2,090
Additional paid-in capital 202,812 203,232
Accumulated other comprehensive income 1,705 2,723
Retained earnings   41,525   22,619
Total shareholders’ equity of Primus Guaranty, Ltd 248,132 230,664
Preferred securities of subsidiary   76,255   76,255
Total equity   324,387   306,919
Total liabilities and equity $ 358,729 $ 417,504
 
       

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

 
Three Months Ended

March 31,

2013 2012
 
Revenues
Net credit swap revenue $ 20,308 $ 266,117
Interest income 1,684 2,548
Gain on retirement of long-term debt - 328
Other income   781   38
Total revenues   22,773   269,031
 
Expenses
Compensation and employee benefits 1,598 1,887
Professional and legal fees 319 437
Interest expense 692 2,308
Other   551   813
Total expenses   3,160   5,445
Income from continuing operations before provision
for income taxes 19,613 263,586
Provision for income taxes   19   14
Income from continuing operations, net of tax 19,594 263,572
Income from discontinued operations, net of tax   84   377
Net income 19,678 263,949
Less:
Distributions on preferred securities of subsidiary   772   931
Net income available to common shares $ 18,906 $ 263,018
 
Income per common share:
Basic:
Income from continuing operations $ 0.72 $ 7.73
Income from discontinued operations $ - $ 0.01
Net income available to common shares $ 0.72 $ 7.74
Diluted:
Income from continuing operations $ 0.72 $ 7.71
Income from discontinued operations $ - $ 0.01
Net income available to common shares $ 0.72 $ 7.72
 
Weighted average common shares outstanding:
Basic 26,126 34,441
Diluted 26,143 34,519
 

Note: Basic and diluted net income available to common shares for March 31, 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 March 31, 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;
  • 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

March 31,

2013 2012
GAAP Net income available to common shares $ 18,906 $ 263,018
Adjustments:
Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial (15,957 ) (259,629 )
Amortization of realized gains from the early termination of credit swaps sold by Primus Financial 2 2
Provision for CDS on ABS credit events (5 ) (324 )
Reduction in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps       78         2,395  
Economic Results     $ 3,024       $ 5,462  
 
Economic Results earnings per GAAP diluted share $ 0.12 $ 0.26
Economic Results weighted average common shares - GAAP diluted
26,143 34,519
 
Note: Economic Results earnings per GAAP diluted share for the year ended March 31, 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.
             
Economic Results Book Value per Share            
 
(in 000's except per share amounts)
March 31, December 31,
2013 2012
 
GAAP Shareholders' equity of Primus Guaranty, Ltd. $ 248,132 $ 230,664
Adjustments:
 
Accumulated other comprehensive (income) loss (1,705 ) (2,723 )
Unrealized fair value of credit swaps sold (gain) loss by Primus Financial 27,004 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 33,569 33,567
Provision for CDS on ABS credit events (70,900 ) (70,895 )
Reduction in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps       66,417         66,339  
Economic Results Shareholders' Equity     $ 268,943       $ 266,339  
 
Economic Results book value per share issued and outstanding $ 10.29 $ 10.19
 
GAAP book value per share issued and outstanding $ 9.50 $ 8.83
 
Common shares issued and outstanding 26,126 26,126

Source: Primus Guaranty, Ltd.

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