Exhibit 99.1
FOR IMMEDIATE RELEASE
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
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. |
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| | • | | 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. |
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| | • | | 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. |
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| | • | | 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. |
Earnings Conference Call
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.
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Primus Guaranty, Ltd.
Condensed Consolidated Statements of Financial Condition
(Unaudited)
(in thousands except share amounts)
| | | | | | | | | |
| | | March 31, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | | | |
Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 146,961 | | | $ | 299,514 | |
| Investments (includes $353,200 and $274,275 at fair value) | | | 353,370 | | | | 274,444 | |
| Restricted cash and investments | | | 128,419 | | | | 127,116 | |
| CLO cash and cash equivalents | | | 138,606 | | | | — | |
| CLO loans and securities, at fair value | | | 2,488,530 | | | | — | |
| CLO other assets | | | 28,516 | | | | — | |
| Accrued interest and premiums | | | 7,172 | | | | 6,163 | |
| Unrealized gain on credit swaps, at fair value | | | 1,873 | | | | 2,207 | |
| Goodwill and other intangible assets | | | 7,865 | | | | 8,017 | |
| Other assets | | | 12,096 | | | | 15,286 | |
| | | | | | | |
| Total assets | | $ | 3,313,408 | | | $ | 732,747 | |
| | | | | | | |
| | | | | | | | | |
Liabilities and Equity (deficit) | | | | | | | | |
Liabilities | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 2,923 | | | $ | 7,855 | |
| Unrealized loss on credit swaps, at fair value | | | 564,436 | | | | 691,905 | |
| Payable for credit events | | | 5,327 | | | | 28,596 | |
| CLO notes | | | 2,208,804 | | | | — | |
| CLO other liabilities | | | 85,385 | | | | — | |
| Long-term debt | | | 233,865 | | | | 244,051 | |
| Other liabilities | | | 18,815 | | | | 9,787 | |
| | | | | | | |
| Total liabilities | | | 3,119,555 | | | | 982,194 | |
| | | | | | | | | |
Equity (deficit) | | | | | | | | |
| Common shares, $0.08 par value, 62,500,000 shares authorized, 39,045,501 and 38,267,546 shares issued and outstanding at March 31, 2010 and December 31, 2009 | | | 3,124 | | | | 3,061 | |
| Additional paid-in capital | | | 281,178 | | | | 280,685 | |
| Accumulated other comprehensive income (loss) | | | 2,431 | | | | 2,148 | |
| Retained earnings (deficit) | | | (541,034 | ) | | | (628,443 | ) |
| Appropriated retained earnings from CLO consolidation | | | 355,052 | | | | — | |
| | | | | | | |
| Total shareholders’ equity (deficit) of Primus Guaranty, Ltd. | | | 100,751 | | | | (342,549 | ) |
| Preferred securities of subsidiary | | | 93,102 | | | | 93,102 | |
| | | | | | | |
| Total equity (deficit) | | | 193,853 | | | | (249,447 | ) |
| | | | | | | |
| Total liabilities and equity (deficit) | | $ | 3,313,408 | | | $ | 732,747 | |
| | | | | | | |
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Primus Guaranty, Ltd.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands except per share amounts)
| | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | | | |
Revenues | | | | | | | | |
| Net credit swap revenue | | $ | 87,530 | | | $ | 110,881 | |
| Net CLO revenue | | | 77,593 | | | | — | |
| CLO interest income | | | 23,422 | | | | — | |
| Asset management and advisory fees | | | 291 | | | | 419 | |
| Interest income | | | 2,700 | | | | 2,373 | |
| Gain on retirement of long-term debt | | | 4,757 | | | | 5,759 | |
| Impairment loss on investments | | | — | | | | (609 | ) |
| Other income (loss) | | | 69 | | | | (76 | ) |
| | | | | | | |
| Total revenues | | | 196,362 | | | | 118,747 | |
| | | | | | | |
| | | | | | | | | |
Expenses | | | | | | | | |
| CLO interest expense | | | 5,837 | | | | — | |
| CLO other expenses | | | 990 | | | | — | |
| Compensation and employee benefits | | | 5,425 | | | | 4,715 | |
| Professional and legal fees | | | 1,639 | | | | 1,421 | |
| Interest expense | | | 1,869 | | | | 2,758 | |
| Other | | | 3,536 | | | | 1,959 | |
| | | | | | | |
| Total expenses | | | 19,296 | | | | 10,853 | |
| | | | | | | |
| Income before provision for income taxes | | | 177,066 | | | | 107,894 | |
| Provision for income taxes | | | 143 | | | | 142 | |
| | | | | | | |
| Net income | | | 176,923 | | | | 107,752 | |
| Distributions on preferred securities of subsidiary | | | 988 | | | | 944 | |
| Less: Net income attributable to non-parent interests | | | 89,413 | | | | — | |
| | | | | | | |
Net income available to common shares | | $ | 86,522 | | | $ | 106,808 | |
| | | | | | | |
| | | | | | | | | |
| Income per common share: | | | | | | | | |
| Basic | | $ | 2.24 | | | $ | 2.61 | |
| Diluted | | $ | 2.15 | | | $ | 2.61 | |
| Average common shares outstanding: | | | | | | | | |
| Basic | | | 38,686 | | | | 40,861 | |
| Diluted | | | 40,280 | | | | 40,888 | |
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Primus Guaranty, Ltd.
Regulation G and Other Disclosure
Economic Results
March 31, 2010
(Unaudited)
In managing its business and assessing its growth and profitability from a strategic and financial planning perspective, Primus Guaranty, Ltd. (“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 Products (“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 asset-backed securities (“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.
Economic Results per GAAP Diluted Share
(in 000’s except per share amounts)
| | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | 2010 | | | 2009 | |
GAAP Net income (loss) available to common shares | | $ | 86,522 | | | $ | 106,808 | |
Adjustments: | | | | | | | | |
| Less: Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial | | | (127,136 | ) | | | (122,890 | ) |
| Less: Realized gains from early termination of credit swaps sold by Primus Financial | | | — | | | | — | |
| Add: Amortization of realized gains from the early termination of credit swaps sold by Primus Financial | | | 294 | | | | 393 | |
| Less: Provision for CDS on ABS credit events | | | (2,374 | ) | | | (15,054 | ) |
| Add: Reduction in provision for CDS on ABS credit events upon termination of credit swaps | | | 1,819 | | | | 24,628 | |
| |
Economic Results (loss) | | $ | (40,875 | ) | | $ | (6,115 | ) |
| |
| Economic Results earnings per GAAP diluted share | | $ | (1.01 | ) | | $ | (0.15 | ) |
| Economic Results weighted average common shares — GAAP diluted | | | 40,280 | | | | 40,888 | |
Economic Results Book Value per Share
| | | | | | | | | |
| | | March 31, | | | December 31, | |
| | | 2010 | | | 2009 | |
| |
GAAP Shareholders’ equity (deficit) of Primus Guaranty, Ltd. | | $ | 100,751 | | | $ | (342,549 | ) |
Adjustments: | | | | | | | | |
| Less: Accumulated other comprehensive income (loss) | | | 2,431 | | | | 2,148 | |
| Less: Unrealized fair value of credit swaps sold (gain) loss by Primus Financial | | | 562,562 | | | | 689,698 | |
| Less: Realized gains from early termination of credit swaps sold by Primus Financial | | | (33,574 | ) | | | (33,574 | ) |
| Add: Amortized realized gains from the early termination of credit swaps sold by Primus Financial | | | 32,927 | | | | 32,633 | |
| Less: Provision for CDS on ABS credit events | | | (68,791 | ) | | | (66,417 | ) |
| Add: Reduction in provision for CDS on ABS credit events upon termination of credit swaps | | | 48,575 | | | | 46,756 | |
| Less: Appropriated retained earnings from CLO consolidation | | | (355,052 | ) | | | — | |
| |
Economic Results Shareholders’ Equity | | $ | 284,967 | | | $ | 324,399 | |
| |
| Economic Results book value per share issued and outstanding | | $ | 7.30 | | | $ | 8.48 | |
| GAAP book value per share issued and outstanding | | $ | 2.58 | | | $ | (8.95 | ) |
| Common shares issued and outstanding | | | 39,046 | | | | 38,268 | |
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Primus Guaranty, Ltd.
GAAP Net Credit Swap Revenue
March 31, 2010
(Unaudited)
GAAP Net Credit Swap Revenue
(in 000’s)
| | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | 2010 | | | 2009 | |
Net credit swap revenue components | | | | | | | | |
Credit swaps sold — single name (Primus Financial) | | | | | | | | |
| Net premium income | | $ | 12,566 | | | $ | 17,233 | |
| Realized gains | | | — | | | | — | |
| Realized losses | | | (19,223 | ) | | | (9,850 | ) |
| Change in unrealized gains/(losses) | | | 36,050 | | | | 50,456 | |
Credit swaps sold — tranches (Primus Financial) | | | | | | | — | |
| Net premium income | | | 3,803 | | | | 5,087 | |
| Realized gains | | | — | | | | — | |
| Realized losses | | | (35,000 | ) | | | — | |
| Change in unrealized gains/(losses) | | | 89,398 | | | | 44,708 | |
Credit swaps undertaken to offset credit risk (Primus Financial) | | | | | | | — | |
| Net premium income (expense) | | | — | | | | 12 | |
| Net realized gains (losses) | | | — | | | | — | |
| Change in unrealized gains/(losses) | | | (299 | ) | | | (9 | ) |
Credit swaps sold — ABS (Primus Financial) | | | | | | | — | |
| Net premium income | | | 67 | | | | 137 | |
| Realized gains | | | — | | | | — | |
| Realized losses | | | (1,819 | ) | | | (24,628 | ) |
| Change in unrealized gains/(losses) | | | 1,987 | | | | 27,735 | |
| | | | | | | |
Net credit swap revenue (loss) | | $ | 87,530 | | | $ | 110,881 | |
| | | | | | | |
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