PRIMUS

Second Quarter 2013


HAMILTON, Bermuda--(BUSINESS WIRE)--Jul. 31, 2013-- Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”) (OTC PINK:PRSG) today announced its financial results for the second quarter ended June 30, 2013.

  • GAAP net income available to common shares for the second quarter 2013 was $16.4 million, or $0.65 per diluted share, compared with GAAP net income available to common shares of $1.6 million, or $0.05 per diluted share, for the second quarter 2012. GAAP net income available to common shares for the second quarter 2013 substantially resulted from a net unrealized mark-to-market gain of $12.3 million on Primus Financial Products, LLC (“Primus Financial”)’s credit swap portfolio.
  • Economic Results for the second quarter 2013 were $4.1 million, or $0.16 per diluted share, compared with Economic Results of $9.2 million, or $0.29 per diluted share, for the second 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 $10.10 at June 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 $10.48 at June 30, 2013, compared with Economic Results book value per common share of $10.19 at December 31, 2012.
  • At June 30, 2013, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $3.4 billion, compared with $4.1 billion at December 31, 2012.
  • During the second quarter of 2013, Primus Guaranty purchased 2 million of its common shares at a total cost of approximately $19 million and Primus Financial redeemed the remaining $77.4 million of its preferred securities at par.
  • On July 30, 2013, the Company’s Board of Directors authorized an increase in the amount available for the purchase of the Company’s common shares to $25 million. Purchases will be made at management’s discretion.

Additional Information

A copy of this press release, the Company’s financial supplement, summary details of Primus Financial’s consolidated credit swap portfolio as of June 30, 2013, and a letter dated July 31, 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. Also available on the Web site are the results of the Company’s 2013 Annual General Meeting of Shareholders held on July 30, 2013.

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 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)

 
June 30, December 31,
  2013   2012
 
Assets
Cash and cash equivalents

$

41,612 $ 51,860
Investments, at fair value 113,395 213,107
Restricted cash and investments 104,816 144,077
Accrued interest and premiums 1,788 3,210
Unrealized gain on credit swaps, at fair value 78 721
Debt issuance costs, net - 510
Other assets (includes $2,034 and $2,701 at fair value as of
June 30, 2013 and December 31, 2012, respectively)     2,899   4,019
Total assets $   264,588 $ 417,504
 
Liabilities and Equity
Liabilities
Accounts payable and accrued expenses $ 3,724 $ 5,202
Unrealized loss on credit swaps, at fair value 14,827 43,682
Payable for credit events - 1,280
Long-term debt - 57,700
Other liabilities (includes $2,018 and $2,205 at fair value as of
June 30, 2013 and December 31, 2012, respectively)     2,380   2,721
Total liabilities $   20,931 $ 110,585
 
Equity
Common shares, $0.08 par value, 62,500,000 shares authorized,
24,123,564 and 26,125,564 shares issued and outstanding
at June 30, 2013 and December 31, 2012, respectively 1,930 2,090
Additional paid-in capital 182,803 203,232
Accumulated other comprehensive income 1,016 2,723
Retained earnings     57,908   22,619
Total shareholders’ equity of Primus Guaranty, Ltd 243,657 230,664
Preferred securities of subsidiary     -   76,255
Total equity     243,657   306,919
Total liabilities and equity $   264,588 $ 417,504
 
         

Primus Guaranty, Ltd.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands except per share amounts)

 

Three Months Ended
June 30,

Six Months Ended
June 30,

2013 2012   2013 2012
 
Revenues
Net credit swap revenue

$  

16,524

$  

823

$  

36,832

$  

266,940
Interest income 1,176 2,501 2,860 5,049
Gain on retirement of long-term debt - 1,097 - 1,425
Other income   621   152     1,402   190
Total revenues   18,321   4,573     41,094   273,604
 
Expenses
Compensation and employee benefits 740 1,944 2,338 3,831
Professional and legal fees 330 361 649 798
Interest expense - 2,236 692 4,544
Other   444   1,035     995   1,848
Total expenses   1,514   5,576     4,674   11,021
Income from continuing operations before provision
for income taxes 16,807 (1,003 ) 36,420 262,583
Provision for income taxes   -   8     19   22
Income from continuing operations, net of tax 16,807 (1,011 ) 36,401 262,561
Income from discontinued operations, net of tax   154   3,256     238   3,633
Net income 16,961 2,245 36,639 266,194
Less:
Distributions on preferred securities of subsidiary   578   599     1,350   1,530
Net income available to common shares $ 16,383 $ 1,646   $ 35,289 $ 264,664
 
Income per common share:
Basic:
Income from continuing operations $ 0.65 $ (0.05 ) $ 1.37 $ 8.03
Income from discontinued operations $ - $ 0.10   $ 0.01 $ 0.11
Net income available to common shares $ 0.65 $ 0.05   $ 1.38 $ 8.14
Diluted:
Income from continuing operations $ 0.65 $ (0.05 ) $ 1.37 $ 8.01
Income from discontinued operations $ - $ 0.10   $ 0.01 $ 0.11
Net income available to common shares $ 0.65 $ 0.05   $ 1.38 $ 8.12
 
Weighted average common shares outstanding:
Basic 25,125 31,429 25,625 32,935
Diluted 25,126 31,488 25,634 33,004
 

Note: Basic and diluted net income available to common shares for June 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
June 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
June 30,

Six Months Ended
June 30,

  2013     2012     2013     2012  
GAAP Net income available to common shares $ 16,383 $ 1,646 $ 35,289 $ 264,664
Adjustments:
Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial (12,255 ) 7,240 (28,212 ) (252,389 )
Amortization of realized gains from the early termination of credit swaps sold by Primus Financial 2 2 4 4
Net adjustment in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps       -       286     73       2,357  
Economic Results     $ 4,130     $ 9,174   $ 7,154     $ 14,636  
 
Economic Results earnings per GAAP diluted share $ 0.16 $ 0.29 $ 0.28 $ 0.55
Economic Results weighted average common shares - GAAP diluted
25,126 31,488 25,634 33,004
 

Note: Economic Results earnings per GAAP diluted share for the six months ended June 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.

                   
Economic Results Book Value per Share                  
 
(in 000's except per share amounts)
June 30, December 31,
  2013     2012  
 
GAAP Shareholders' equity of Primus Guaranty, Ltd. $ 243,657 $ 230,664
Adjustments:
 
Accumulated other comprehensive (income) loss (1,016 ) (2,723 )
Unrealized fair value of credit swaps sold (gain) loss by Primus Financial 14,749 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 33,571 33,567
Provision for CDS on ABS credit events       (4,483 )     (4,556 )
Economic Results Shareholders' Equity     $ 252,904     $ 266,339  
 
Economic Results book value per share issued and outstanding $ 10.48 $ 10.19
 
GAAP book value per share issued and outstanding $ 10.10 $ 8.83
 
Common shares issued and outstanding 24,124 26,126

Source: Primus Guaranty, Ltd.

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