Exhibit 99.1
PRIMUS GUARANTY REPORTS FOURTH QUARTER AND FULL YEAR 2005 FINANCIAL RESULTS
HAMILTON, BERMUDA - FEBRUARY 8, 2006 - Primus Guaranty, Ltd. ("Primus Guaranty")
(NYSE: PRS), a leading provider of credit protection, announced today GAAP net
income of $3.1 million, or $0.07 per diluted share for its fourth quarter 2005,
compared with net income of $13.7 million, or $0.31 per diluted share, for the
fourth quarter of 2004. Diluted per share results for the 2005 and 2004 fourth
quarters were based on 44.2 million diluted shares and 44.4 million diluted
shares, respectively. The fourth quarter of 2004 included a one-time expense of
$3.3 million, or $0.08 per diluted share, due to the accelerated vesting of
employee restricted stock and options as a result of its initial public
offering. For the year ended December 31, 2005, GAAP net income was $4.1
million, or $0.09 per diluted share, compared with net income of $23.7 million,
or $0.59 per diluted share, for the year ended December 31, 2004. Diluted per
share results for 2005 and 2004 were based on 44.6 million diluted shares and
40.3 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. By excluding quarterly fluctuations in the fair
market value of our long-term portfolio of swaps sold, which variations have
little or no effect on the company's operations, Economic Results provide a
useful, and we believe more meaningful, alternative view of long-term trends in
our profitability. This measure is also used by our board in assessing our
performance.
During the fourth quarter of 2005, Economic Results were $12.2 million, or $0.28
per diluted share, compared with $4.1 million, or $0.09 per diluted share, in
the fourth quarter of 2004. Excluding the one-time expense of $3.3 million, or
$0.08 per diluted share, due to the accelerated vesting of employee restricted
stock and options as a result of its initial public offering, adjusted Economic
Results were $7.4 million, or $0.17 per diluted share for the fourth quarter of
2004. For the year ended December 31, 2005, Economic Results were $36.4 million,
or $0.82 per diluted share, compared with Economic Results of $25.7 million,
after adjustment for the one-time expense, or $0.64 per diluted share, for the
year ended December 31, 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 quite pleased with our performance in the fourth quarter and for the year
as a whole," said Primus Guaranty Chief Executive Officer Thomas W. Jasper.
"Continued growth in our portfolio, coupled with the operating leverage in our
platform, resulted in significantly higher profitability. Additionally, our
return on equity, which was 15% for the fourth quarter, increased substantially
over the prior year period."
"As we look ahead, we will continue to focus on growing our core business at
attractive risk adjusted returns and leveraging our platform by expanding our
asset management business. This strategy should enable us to further increase
revenues, earnings and returns on equity."
FOURTH QUARTER REVENUES
GAAP revenues for the fourth quarter 2005 were $12.6 million, a decrease of 49%
from $24.8 million in the year-earlier quarter. The decrease is mainly
attributable to unrealized mark-to-market losses partly offset by increased
premium and interest income during the fourth quarter of 2005.
Economic revenues for the fourth quarter 2005 were $21.7 million, an increase of
44% from $15.1 million in the year-earlier quarter.
Contributing to the growth in Economic revenues was a 29% increase in premium
income on credit swaps sold, to $15.4 million in the fourth quarter of 2005,
compared with $11.9 million in the same period of 2004. The increase reflects
the continued growth of the company's credit swap portfolio.
Interest income for the fourth quarter of 2005 was $5.1 million, an increase of
approximately $2.8 million from the fourth quarter of 2004. The increase is
driven by higher investment yields and the increase in average invested
balances. The average investment yield in the fourth quarter of 2005 increased
to 3.74 %, up 180 basis points from an average of 1.94% in the fourth quarter of
2004. Weighted average balances were $540 million for the fourth quarter of
2005, compared with $477 million in the same quarter of 2004. On December 19,
2005, we received net proceeds of $123 million related to the issuance of debt
by Primus Financial Products, LLC.
Realized losses on the portfolio of credit swaps sold were $318 thousand in the
fourth quarter of 2005, compared with $348 thousand for the same period of the
prior year. These losses are attributable to our decision to mitigate credit
exposure through the early termination of certain credit swaps sold. To date,
there have been no credit events in our portfolio of credit swaps sold.
FOURTH QUARTER OPERATING AND FINANCING EXPENSES
Operating expenses, excluding financing costs, were $7.4 million for the fourth
quarter of 2005, compared with $10.0 million in the fourth quarter of 2004. The
fourth quarter of 2004 included a $3.3 million one-time accelerated employee
restricted stock and option vesting expense as a result of its initial public
offering, mentioned previously. The resulting $700 thousand increase in expenses
in the fourth quarter of 2005, compared with the adjusted expenses in the fourth
quarter of 2004, is attributable to additional compensation expenses, 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 $2.1 million in the fourth quarter of 2005, compared with $1.1
million in the fourth quarter of 2004. The increase in financing costs was
primarily attributable to increased interest rates.
YEAR ENDED DECEMBER 31, 2005 REVENUES
GAAP revenues for the year ended December 31, 2005 were $38.2 million, a
decrease of 29% from $53.8 million in 2004. The decrease is attributable to the
combination of the increase in unrealized mark-to-market losses as a result of
the widening of market credit swap premiums coupled with a decline in the
unrealized gain from credit swaps as they approach maturity. Unrealized losses
for the year ended December 31, 2005 increased $24.1 million to a loss of $24.4
million from a loss of $268 thousand in 2004.
Economic revenues for the year ended December 31, 2005 were $70.5 million, an
increase of 35% from $52.4 million in 2004.
Contributing to the growth in Economic revenues was a 24% increase in premium
income on credit swaps sold, to $54.0 million, for the year ended December 31,
2005, compared with $43.5 million in 2004. The increase reflects the continued
growth of the company's credit swap portfolio.
Interest income for the year ended December 31, 2005 was $16.0 million, an
increase of approximately $11.1 million from interest income of $4.9 million in
2004. The increase is driven by both higher investment yields and the increase
in average invested balances. The average investment yield increased to 3.22%,
up 180 basis points from an average of 1.42% for 2004. Weighted average balances
were $499 million for the year ended December 31, 2005, compared with $341
million for 2004. On December 19, 2005, we received net proceeds of $123 million
related to the issuance of debt by Primus Financial Products, LLC.
Partially offsetting the higher levels of premium and investment income for 2005
was an increase in realized losses on the portfolio of single name credit swaps
sold. Realized losses for the year ended December 31, 2005 were $4.8 million,
compared with $1.1 million for 2004. Of the $4.8 million, $4.5 million was
attributable to our decision to mitigate credit exposure through the early
termination of credit swaps sold. The company also incurred foreign exchange
losses of $1.5 million in 2005 on its holdings of Euro cash balances received on
the Euro denominated swaps it had written, compared to a $726 thousand gain in
2004.
YEAR ENDED DECEMBER 31, 2005 OPERATING AND FINANCING EXPENSES
Operating expenses, excluding financing costs, were $27.5 million for the year
ended December 31, 2005, compared with $27.0 million in 2004. Expenses in 2004
included the $3.3 million one-time accelerated employee restricted stock and
option vesting expense as a result of its initial public offering, mentioned
previously. The increase of $3.8 million in 2005 from this adjusted number is
attributable to additional compensation expenses, 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 $6.5 million in the year ended December 31, 2005, compared with
$3.0 million in 2004. The increase in financing costs was primarily attributable
to the increased interest rates in 2005 combined with a full year's interest
expense associated with the $75 million of subordinated deferrable interest
notes, which were issued in July 2004.
CREDIT SWAP PORTFOLIO
At December 31, 2005, the company's portfolio of single name credit swaps sold
totaled $13.4 billion, up 28% from $10.5 billion at December 31, 2004. There
were 532 reference entities in the portfolio at December 31, 2005 compared with
476 at December 31, 2004.
The fourth quarter 2005 new deal transaction volume for single name credit swaps
sold was $1.6 billion, with a weighted average premium of 50 basis points, and
an average original tenor of 5.03 years. The weighted average original premium
on the $13.4 billion portfolio of single name credit swaps sold as of December
31, 2005 was 45 basis points. In the third quarter of 2005, we received rating
agency approval to sell credit protection on reference entities rated below
investment grade. Of the $1.6 billion new deal transaction volume for single
name credit swaps sold, $78 million was attributable to credit swaps against
sub-investment grade reference entities (limited to BB) at an average premium of
142 basis points.
Tranche notional sold was $50 million at December 31, 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 December 31, 2005, total assets, on a GAAP basis, were $673.1 million, an
increase of 24% from $542.7 million at December 31, 2004. At December 31, 2005,
net shareholders' equity was $361.9 million, a 0.2% increase from $361.0 million
at December 31, 2004.
Total cash, cash equivalents and available-for-sale investments at December 31,
2005 were $629.5 million, of which $566.7 million resides in the principal
operating subsidiary, Primus Financial Products, LLC.
During the third quarter 2005, we adopted a policy of selling net premiums
received from our Euro denominated credit swaps for U.S. dollars, leaving only a
small working Euro cash balance. As of December 31, 2005, our Euro cash balance
was (euro)406 thousand.
EARNINGS CONFERENCE CALL
Primus Guaranty will host a conference call Wednesday, February 8, 2006, at
11:00 AM (ET) with access available via Internet and telephone. To access the
live conference call, dial (800) 435-1398 (toll-free domestic) or (617) 614-4078
(international). The access code is 29436214. 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, February 8, 2006, and can be accessed at (888) 286-8010 (toll-free
domestic) or
(617) 801-6888 (international). The access code is 45135156. 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 the webcast icon in the center of the 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 an 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-K, as filed with the SEC.
PRIMUS GUARANTY, LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in 000s except per share amounts)
DECEMBER 31,
-----------------------------
2005 2004
------------- --------------
(unaudited)
ASSETS
Cash and cash equivalents............................................... $ 69,355 $ 320,989
Available-for-sale investments.......................................... 560,147 161,101
Accrued interest receivable............................................. 5,127 1,381
Accrued premiums on credit swaps........................................ 3,369 3,349
Premiums receivable on credit swaps..................................... 92 197
Premiums receivable on financial guarantees............................. 300 800
Asset management fee receivable......................................... 2 15
Prepaid expenses........................................................ 954 868
Unrealized gain on credit swaps, at fair value.......................... 25,342 46,517
Fixed assets, net....................................................... 1,682 1,800
Internal use software costs, less accumulated amortization of $7,744 in
2005 and $5,893 in 2004.............................................. 3,311 4,297
Other receivables....................................................... 254 279
Debt issuance costs, net................................................ 3,147 1,125
------------- -------------
Total assets....................................................... $ 673,082 $ 542,718
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses................................... $ 3,026 $ 904
Compensation payable.................................................... 4,833 5,317
Brokerage fees payable.................................................. 9 14
Taxes payable........................................................... 54 12
Interest payable........................................................ 404 364
Long-term debt.......................................................... 200,000 75,000
Unrealized loss on credit swaps, at fair value.......................... 3,521 259
Deferred rent payable................................................... 416 455
Deferred financial guarantee premiums................................... 401 806
Deferred credit swap premiums........................................... 46 69
------------ ------------
Total liabilities.................................................. 212,710 83,200
Preferred securities of subsidiary...................................... 98,521 98,521
Commitments and contingencies
Stockholders' equity:
Common stock, $0.08 par value, 62,500,000 shares authorized,
43,176,511 and 42,780,033 shares issued and outstanding at
December 31, 2005 and 2004......................................... 3,691 3,535
Additional paid-in-capital........................................... 265,729 264,860
Warrants............................................................. 612 612
Accumulated other comprehensive loss................................. (4,254) --
Retained earnings ................................................... 96,073 91,990
------------- -------------
Total stockholders' equity.............................................. 361,851 360,997
------------- -------------
Total liabilities, preferred securities of subsidiary and stockholders'
equity............................................................... $ 673,082 $ 542,718
============= =============
PRIMUS GUARANTY, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in 000s except per share data)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
2005 2004 2005 2004
-------------- ------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES
Net credit swap revenue....................... $ 7,434 $ 21,563 $ 23,106 $ 47,729
Premiums earned on financial guarantees....... 105 100 405 395
Interest income............................... 5,058 2,316 16,047 4,850
Rental income................................. - - - 40
Asset management fees......................... 50 12 190 15
Foreign currency revaluation income (loss).... (82) 765 (1,546) 726
-------------- ------------- ------------- -------------
Total net revenues............................ 12,565 24,756 38,202 53,755
EXPENSES
Compensation and employee benefits............ 3,796 6,659 15,935 17,801
Professional and legal fees................... 1,803 1,254 4,534 2,414
Depreciation and amortization................. 549 497 2,123 1,951
Technology and data feeds..................... 380 449 1,630 1,363
Rent.......................................... 198 194 765 744
Bank fees..................................... 218 136 878 576
Rating agency fees............................ 50 57 266 346
Brokerage expense............................. 22 87 129 602
Interest expense.............................. 1,020 505 2,660 881
Other......................................... 415 631 1,288 1,208
-------------- ------------- ------------- -------------
Total expenses................................ 8,451 10,469 30,208 27,886
Distributions on preferred securities of
subsidiary................................. (1,068) (589) (3,865) (2,138)
-------------- ------------- ------------- -------------
Income before benefit (provision)
for income taxes........................... 3,046 13,698 4,129 23,731
Benefit (provision) for income taxes.......... 62 49 (46) (46)
-------------- ------------- ------------- -------------
NET INCOME AVAILABLE TO COMMON SHARES ........ $ 3,108 $ 13,747 $ 4,083 $ 23,685
============== ============= ============= =============
Earnings per common share:
Basic $ 0.07 $ 0.32 $ 0.09 $ 1.44
Diluted $ 0.07 $ 0.31 $ 0.09 $ 0.59
Average common shares outstanding:
Basic 43,156 42,957 43,150 16,486
Diluted 44,223 44,401 44,645 40,256
PRIMUS GUARANTY, LTD.
REGULATION G DISCLOSURE
ECONOMIC RESULTS
DECEMBER 31, 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 believe it is appropriate to
consider both our U.S. GAAP financial results as well as the impact on those
results of fair value accounting and the termination of credit swaps. Therefore,
we evaluate what our Economic Results would have been if we excluded from
revenue the amounts of any unrealized gains and losses on our portfolio of
credit swaps sold, and any realized gains from terminations of credit swaps sold
prior to maturity, although we amortize those gains over the remaining original
lives of the terminated contracts, except for credit swaps purchased as
investments.
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
2005 2004 2005 2004
----------- ------------ ----------- ------------
GAAP NET INCOME $ 3,108 $ 13,747 $ 4,083 $ 23,685
Adjustments:
Less: Change in unrealized fair value of credit swaps
sold (gain)losses 7,631 (11,171) 26,639 (1,957)
Less: Realized gains from early termination of
credit swaps sold (300) (173) (1,090) (5,533)
Add: Amortization of realized gains from the early
termination of credit swaps sold 1,756 1,681 6,783 6,175
- ----------------------------------------------------------------------------------------------------------------
NET ECONOMIC RESULTS $ 12,195 $ 4,084 $ 36,415 $ 22,370
- ----------------------------------------------------------------------------------------------------------------
Economic earnings per share $0.28 $0.09 $0.82 $0.56
Economic weighted average common shares
outstanding-diluted 44,223 44,401 44,645 40,256
