Exhibit 99.1 PRIMUS GUARANTY REPORTS THIRD QUARTER 2005 FINANCIAL RESULTS HAMILTON, BERMUDA - NOVEMBER 9, 2005 - Primus Guaranty, Ltd. ("Primus Guaranty") (NYSE: PRS), a leading provider of credit protection, announced today GAAP net income of $24.0 million, or $0.54 per diluted share for its third quarter 2005, compared with net income of $18.0 million, or $0.51 per diluted share, for the third quarter of 2004. Diluted per share results for the 2005 and 2004 third quarters were based on 44.5 million diluted shares and 35.2 million diluted shares, respectively. For the nine months ended September 30, 2005, GAAP net income was $975 thousand, or $0.02 per diluted share, compared with net income of $9.9 million, or $0.28 per diluted share, for the nine months ended September 30, 2004. Diluted per share results for the 2005 and 2004 nine months ended September 30 were based on 44.7 million diluted shares and 35.1 million diluted shares, respectively. 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 financial results as well as the impact on those results of fair value accounting and the termination of credit swaps. Therefore, the company evaluates what its Economic Results would have been if it excluded from revenue the amounts of any unrealized gains and losses on its portfolio of credit swaps sold, and any realized gains from terminations of credit swaps sold prior to maturity, although it amortizes those gains over the remaining original lives of the terminated contracts, except for credit swaps purchased as investments. During the third quarter of 2005, Economic Results were $10.4 million, or $0.23 per diluted share, compared with $5.3 million, or $0.15 per diluted share, in the year-ago period. This represents an approximate 96% increase in year over year Economic Results. For the nine months ended September 30, 2005, Economic Results were $24.2 million, or $0.54 per diluted share, compared with Economic Results of $18.3 million, or $0.52 per diluted share, for the nine months ended September 30, 2004. Please refer to the last page of this press release and to the company quarterly financial supplement for full disclosure of the reconciliation from GAAP Results to Economic Results. MANAGEMENT COMMENTARY "I am extremely pleased with the economic performance in the third quarter 2005, as we almost doubled our Economic Results relative to last year's third quarter numbers," said Primus Guaranty Chief Executive Officer Thomas W. Jasper. "It reflects the solid progress we have made in executing on our strategy of capturing significant growth opportunities in the dynamic credit swap market. Additionally, the strong growth in earnings demonstrates the operating leverage in the platform. Contributing to the large increase in Economic Results was the 39% growth in portfolio size and 54% increase in economic revenues, achieved with only a 21% increase in operating & financing expenses. Additionally, I am pleased to see improvement in the Economic return on equity, as it increased to 13.2%, from 9.3% for the year-earlier quarter." "As we move forward, we continue to focus on successfully implementing our strategic plan. Our plan involves growing our core business while maintaining an appropriate risk/return profile, leveraging our infrastructure and expertise to expand our asset management business, and maintaining our financial discipline to ensure we benefit from economies of scale. This should enable us to further increase revenues, earnings and return on equity." THIRD QUARTER REVENUES GAAP revenues for the third quarter 2005 were $32.1 million, an increase of 30.0% from $24.7 million in the year-earlier quarter. The increase is mainly attributable to the increase in unrealized mark-to-market gains as a result of general tightening of market credit swap premiums during the quarter. Unrealized gains for the third quarter 2005 increased $5 million to $14.7 million from $9.7 million in the year ago quarter. Economic revenues for the third quarter 2005 were $18.5 million, an increase of 54.2% from $12.0 million in the year-earlier quarter. Contributing to the growth in revenues was a 27.7% increase in premium income on credit swaps sold (single-name and tranche), to $14.3 million in the third quarter of 2005, compared with $11.2 million in the same period of 2004. The increase reflects the continued growth of the company's credit swap portfolio. Interest income for the third quarter of 2005 was $4.5 million, an increase of approximately $3.3 million from the third quarter of 2004. The increase is mainly driven by the increase in average invested balances and higher investment yields. Average balances were $492.5 million for the third quarter of 2005, compared with $318.5 million in the same quarter of 2004. The average investment yield increased to 3.64%, up 233 basis points from an average of 1.31% in the third quarter of 2004. Realized losses on the portfolio of credit swaps sold were $1.4 million in the third quarter of 2005, compared with $778 thousand for the same period last year. Of the $1.4 million realized loss, $1.3 million was attributable to our decision to mitigate credit exposure through the early termination of credit swaps sold. To date, there have been no credit events in our portfolio of credit swaps sold. THIRD QUARTER OPERATING AND FINANCING EXPENSES Operating expenses, excluding financing costs, were $6.4 million for the third quarter of 2005, compared with $5.9 million in the third quarter of 2004. Financing costs, comprising distributions on preferred shares and interest expense, were $1.7 million in the third quarter of 2005, compared with $778 thousand in the third quarter of 2004. The increase in financing costs was primarily attributable to increased interest rates. NINE MONTHS ENDED SEPTEMBER 30 REVENUES GAAP revenues for the nine months ended September 30, 2005 were $25.6 million, a decrease of 11.7% from $29.0 million in the year-earlier period. The decrease is mainly attributable to higher mark-to-market losses in the first nine months of 2005. Unrealized losses for the nine months ended September 30, 2005 increased $8.4 million to $18.8 million from $10.4 million in the year ago period. Economic revenues for the first nine months of 2005 were $48.9 million, an increase of 31.1% from $37.3 million in the year-earlier period. Contributing to the growth in revenues was a 22.5% increase in premium income on credit swaps sold (single-name and tranche), to $38.7 million for the nine months ended September 30, 2005, compared with $31.6 million in the same period of 2004. The increase reflects the continued growth of the company's credit swap portfolio. Interest income for the first nine months of 2005 was $11.0 million, an increase of approximately $8.5 million from the same period of 2004. The increase is driven by both the increase in average invested balances and higher investment yields. Average balances were $489.8 million for the nine months ended September 30, 2005, compared with $311.5 million for the same period of 2004. The average investment yield increased to 2.99%, up 187 basis points from an average of 1.12% for the nine months ended September 30, 2004. Partially offsetting the higher levels of premium and investment income during the first nine months of 2005 was an increase in realized losses on the portfolio of single name credit swaps sold. Realized losses for the nine months ended September 30, 2005 were $4.5 million, compared with $791 thousand for the same period last year. Of the $4.5 million, $4.2 million was attributable to our decision to mitigate credit exposure through the early termination of credit swaps sold. NINE MONTHS ENDED SEPTEMBER 30 OPERATING AND FINANCING EXPENSES Operating expenses, excluding financing costs, were $20.1 million for the nine months ended September 30, 2005, compared with $17.0 million in the same period of 2004. The increase of $3.1 million is attributable to additional compensation expense coupled with increases in professional and legal fees as a result of being a public company. Financing costs, comprising distributions on preferred shares and interest expense, were $4.4 million in the first nine months of 2005, compared with $1.9 million in the same period of 2004. The increase in financing costs was primarily attributable to the increased interest rates in 2005 combined with a full nine month expense associated with the $75 million of subordinated deferrable interest notes which were issued in July 2004. CREDIT SWAP PORTFOLIO At September 30, 2005, the company's portfolio of single name credit swaps sold totaled $13.0 billion, up 23.8% from $10.5 billion at December 31, 2004. There were 533 reference entities in the portfolio at September 30, 2005 compared with 476 at December 31, 2004. The third quarter 2005 new deal transaction volume for single name credit swaps sold was $1.6 billion, with a weighted average premium of 41 basis points, and an average original tenor of 5.21 years. The weighted average original premium on the $13.0 billion portfolio of single name credit swaps sold as of September 30, 2005 was 43 basis points. Tranche notional sold was $50 million at September 30, 2005, with an original premium of 89 basis points. There was no corresponding position in 2004, as the business commenced in April 2005. BALANCE SHEET At September 30, 2005, total assets, on a GAAP basis, were $541.6 million, a decrease of 0.2% from $542.7 million at December 31, 2004. At September 30, 2005, net shareholders' equity was $359.3 million, a 0.5% decrease from $361.0 million at December 31, 2004. Total cash, cash equivalents and available-for-sale investments at September 30, 2005 were $497.5 million, of which $433.7 million resides in the principal operating subsidiary - Primus Financial Products, LLC. During the third quarter 2005, we adopted a policy calling for the exchange of our Euro denominated cash balances for U.S. dollars. As of September 30, 2005, our Euro balance was (euro)377 thousand. EARNINGS CONFERENCE CALL Primus Guaranty will host a conference call Wednesday, November 9, 2005, at 11:00 AM (ET) with access available via Internet and telephone. To access the live conference call, dial (800) 299-9086 (toll-free domestic) or (617) 786-2903 (international). The access code is 37845573. Please call to register at least 10 minutes before the conference call begins. A replay of the call will be available for three weeks via telephone starting at approximately 1:00 PM (ET) on Wednesday, November 9, 2005, and can be accessed at (888) 286-8010 (toll-free domestic) or (617) 801-6888 (international). The access code is 28597954. The webcast will be live as well as archived for one quarter on Primus Guaranty's website: www.primusguaranty.com. To access the webcast, refer to the investor relations section of the website, and click on webcast icon in center of page. Supplemental financial information, including additional portfolio and historical data, will be available on Primus Guaranty, Ltd.'s website under "Investor Relations-Webcasts" or by clicking on http://phx.corporate-ir.net/phoenix.zhtml?c=179637&p=irol-presentations. ABOUT PRIMUS GUARANTY Primus Guaranty, Ltd., through its principal operating subsidiary, Primus Financial Products, LLC, offers protection against the risk of default on corporate and sovereign obligations. Primus Financial assumes these risks through the sale of credit swaps to dealers, banks and portfolio managers. As a swap counterparty, Primus Financial is rated Aaa by Moody's Investor Service, Inc. and AAA by Standard & Poor's Rating Services. Another subsidiary of Primus Guaranty, Primus Asset Management, Inc., manages the credit swap portfolio of Primus Financial, and provides credit swap portfolio management services to third parties. The company is traded on the New York Stock Exchange under the symbol PRS. Primus Guaranty is a Bermuda company, with the operations of its principal subsidiaries, Primus Financial Products and Primus Asset Management, headquartered in New York City. SAFE HARBOR STATEMENT Some of the statements included in this press release, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements that involve a number of risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. For a discussion of the factors that could affect our actual results please refer to the risk factors identified from time to time in our SEC reports, including, but not limited to, our 10-Q, as filed with the SEC. PRIMUS GUARANTY, LTD. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in 000s except per share amounts) SEPTEMBER 30, DECEMBER 31, 2005 2004 ---------------- --------------- (unaudited) ASSETS Cash and cash equivalents............................................... $ 80,951 $ 320,989 Available-for-sale investments.......................................... 416,597 161,101 Accrued interest receivable............................................. 4,135 1,381 Accrued premiums on credit swaps........................................ 3,198 3,349 Premiums receivable on credit swaps..................................... 160 197 Premiums receivable on financial guarantees............................. 400 800 Asset management fee receivable......................................... 3 15 Prepaid expenses........................................................ 524 868 Unrealized gain on credit swaps, at fair value.......................... 29,157 46,517 Fixed assets, less accumulated depreciation of $689 in 2005 and $493 in 2004................................................................. 1,627 1,800 Internal use software costs, less accumulated amortization of $7,107 in 2005 and $5,893 in 2004.............................................. 3,415 4,297 Income tax receivable................................................... 279 279 Debt issuance costs..................................................... 1,124 1,125 ---------- ---------- Total assets....................................................... $ 541,570 $ 542,718 ========== ========== LIABILITIES, PREFERRED SECURITIES OF SUBSIDIARY AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses................................... $ 1,798 $ 904 Compensation accrual.................................................... 3,916 5,317 Brokerage fees payable.................................................. 6 14 Taxes payable........................................................... 220 12 Interest payable........................................................ 95 364 Long-term debt.......................................................... 75,000 75,000 Unrealized loss on credit swaps, at fair value.......................... 1,737 259 Deferred rent payable................................................... 435 455 Deferred financial guarantee premiums................................... 506 806 Deferred credit swap premiums........................................... 51 69 ---------- ---------- Total liabilities.................................................. 83,764 83,200 Preferred securities of subsidiary...................................... 98,521 98,521 Shareholders' equity: Common stock, $0.08 par value, 62,500,000 shares authorized, 43,120,989 and 42,780,033 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively............. 3,682 3,535 Additional paid-in-capital........................................... 264,698 264,860 Warrants............................................................. 612 612 Accumulated other comprehensive income............................... (2,670) - Retained earnings ................................................... 92,963 91,990 ---------- ---------- Total shareholders' equity.............................................. 359,285 360,997 ---------- ---------- Total liabilities, preferred securities of subsidiary and shareholders' equity............................................................... $ 541,570 $ 542,718 ========== ========== PRIMUS GUARANTY, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in 000s except per share amounts) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ---------------------- (unaudited) 2005 2004 2005 2004 ------------- ---------- ------------ --------- REVENUES Net credit swap revenue........................ $ 27,449 $ 23,331 $ 15,672 $ 26,166 Premiums earned on financial guarantees....... 101 99 300 295 Investment portfolio realized gains/(losses).. (3) - 20 - Interest income on investment portfolio....... 4,483 1,166 10,969 2,534 Rental income................................. - - - 40 Asset management fees......................... 49 3 140 3 Foreign currency revaluation.................. 55 66 (1,464) (40) ---------- --------- -------- --------- Total net revenues............................ 32,134 24,665 25,637 28,998 ---------- --------- -------- --------- EXPENSES Employee compensation and benefits............ 3,537 3,858 12,139 11,142 Professional and legal fees................... 981 382 2,731 1,160 Fixed asset depreciation and amortization..... 533 494 1,574 1,453 Technology and data........................... 535 243 1,250 914 Rent.......................................... 191 193 567 550 Bank and investment management fees........... 203 275 660 438 Rating agency fees............................ 61 151 216 289 Brokerage expense............................. 18 151 107 515 Interest expense.............................. 649 375 1,640 375 Other......................................... 332 136 873 579 ---------- --------- -------- --------- Total expenses................................ 7,040 6,258 21,757 17,415 Distributions on preferred securities of subsidiary................................. (1,022) (403) (2,797) (1,550) ---------- --------- -------- --------- Income before provision for income taxes...... 24,072 18,004 1,083 10,033 Benefit/(Provision) for income taxes.......... (63) 22 (108) (95) ---------- --------- -------- --------- NET INCOME AVAILABLE TO COMMON SHARES......... $ 24,009 $ 18,026 $ 975 $ 9,938 ========== ========= ======== ========= Earnings per common share: Basic......................................... $ 0.56 $ 4.23 $ 0.02 $ 2.57 Diluted....................................... $ 0.54 $ 0.51 $ 0.02 $ 0.28 Average common shares outstanding: Basic......................................... 43,120 4,264 43,147 3,866 Diluted....................................... 44,543 35,219 44,673 35,081 PRIMUS GUARANTY, LTD. REGULATION G DISCLOSURE ECONOMIC RESULTS SEPTEMBER 30, 2005 (DOLLARS IN 000'S EXCEPT PER SHARE AMOUNTS) In managing our business and assessing its growth and profitability from a strategic and financial planning perspective, we appropriate to consider both our U.S. GAAP financial results as well as the impact on those results of fair value accounting and termination of credit swaps. Therefore, we evaluate what our Economic Results would have been if we excluded from revenue of any unrealized gains and losses on our portfolio of credit swaps sold, and any realized gains from terminations of credit swaps maturity, although we amortize those gains over the remaining original lives of the terminated contracts, except for credit swaps investments. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ------------------------- 2005 2004 2005 2004 ------------ ------------- ------------ ----------- GAAP NET INCOME/(LOSS) $ 24,009 $ 18,026 $ 975 $ 9,938 Adjustments: Less: Change in unrealized fair value of credit swaps sold (gain)/loss (15,190) (10,991) 19,008 9,214 Less: Realized gains from early termination of credit swaps sold (201) (3,251) (790) (5,360) Add: Amortization of realized gains from the early termination of credit swaps sold 1,738 1,542 5,027 4,494 - ---------------------------------------------------------------------------------------------------------- NET ECONOMIC RESULTS $ 10,356 $ 5,326 $ 24,220 $ 18,286 - ---------------------------------------------------------------------------------------------------------- Economic earnings per share $ 0.23 $ 0.15 $ 0.54 $ 0.52 Economic weighted average common shares outstsanding-diluted 44,543 35,219 44,673 35,081
