Exhibit 99.1
PRIMUS GUARANTY REPORTS SECOND QUARTER 2006 FINANCIAL RESULTS
HAMILTON, BERMUDA - August 8, 2006 - Primus Guaranty, Ltd. ("Primus Guaranty")
(NYSE: PRS), a leading provider of credit protection, announced today GAAP net
income of $10.7 million, or $0.24 per diluted share for its second quarter 2006,
compared with a GAAP net loss of $9.2 million, or $0.21 per diluted share for
the second quarter of 2005. For the six months ended June 30, 2006, GAAP net
income was $45.8 million, or $1.03 per diluted share, compared with a GAAP net
loss of $23.0 million, or $0.53 per diluted share, for the six months ended June
30, 2005.
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 Primus Financial's* 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. The company believes that by
excluding quarterly fluctuations in the fair market value of the long-term
portfolio of swaps sold, which variations have little or no effect on the
company's operations, Economic Results provide a useful, and more meaningful,
alternative view of long-term trends in profitability.
During the second quarter of 2006, Economic Results were $12.4 million, or $0.28
per diluted share, compared with $6.3 million, or $0.14 per diluted share, in
the second quarter of 2005. For the six months ended June 30, 2006, Economic
Results were $24.1 million, or $0.54 per diluted share, compared with Economic
Results of $13.9 million, or $0.31 per diluted share, for the six months ended
June 30, 2005.
Commenting on the second quarter 2006, Primus Guaranty Chief Executive Officer,
Thomas W. Jasper, noted "I am extremely pleased with our performance this
quarter, as our Economic Results of $12.4 million are the highest quarterly
Economic Results in our history. We managed to grow our portfolio by
approximately 25%, while increasing premium income by more than 30% over the
year earlier quarter. Further, we improved our Economic ROE to 14.2%, a
significant improvement compared to the second quarter of last year."
"We also made significant progress in the execution of our asset management
strategy, including making key hires and in establishing some important dealer
relationships which will facilitate the capital raising for both our high yield
and relative value activities. Our focus continues to be growing our credit swap
portfolio at good risk adjusted returns while continuing our expansion into
asset management."
SECOND QUARTER REVENUES
GAAP revenues for the second quarter 2006 were $23.9 million, an increase of
$25.5 million from the year-earlier quarter. The increase is mainly attributable
to lower unrealized mark-to-market losses and increased premium and interest
income during the second quarter of 2006.
Economic revenues for the second quarter 2006 were $25.7 million, an increase of
85% from $13.9 million in the year-earlier quarter.
Contributing to the growth in Economic revenues was a 35% increase in premium
income from Primus Financial's* credit swaps sold, to $17.1 million in the
second quarter of 2006, compared with $12.7 million in the same period of 2005.
The increase reflects the continued growth of Primus Financial's credit swap
portfolio to $15.4 billion.
Realized losses on the Primus Financial portfolio of credit swaps sold were $219
thousand in the second quarter of 2006, compared with $3.0 million for the same
period of the prior year. These losses are attributable to our decision to
reduce 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.
Net credit swap revenue for PRS Trading was negative $29 thousand for the second
quarter 2006. PRS Trading commenced trading in January 2006, therefore there is
no prior period comparison. All components of net credit swap revenue for PRS
Trading are incorporated in our Economic Results.
Net total return swap revenue was $124 thousand for the second quarter 2006.
There was no corresponding revenue in 2005, as this trading activity commenced
in April 2006. Net total return swap revenue is incorporated in our Economic
Results.
Consolidated interest income for the second quarter of 2006 was $6.8 million, an
increase of approximately $4.0 million from the second quarter of 2005. The
increase is primarily driven by higher investment yields and an increase in
average invested balances. The average investment yield in the second quarter of
2006 increased to 4.26%, from an adjusted 2.79% in the same quarter of 2005.
Weighted average balances were $638 million for the second quarter of 2006,
compared with $483 million in the same quarter of 2005.
SECOND QUARTER OPERATING AND FINANCING EXPENSES
Operating expenses, excluding financing costs, were $9.0 million for the second
quarter of 2006, compared with $6.0 million in the second quarter of 2005. The
increase in expenses is mainly attributable to the expansion of our business
operations in the second quarter of 2006, resulting in additional expenses
related to compensation, professional and legal fees.
Financing costs, comprising distributions on preferred shares and interest
expense, were $4.3 million in the second quarter of 2006, compared with $1.6
million in the year earlier quarter. The increase in financing costs was
primarily attributable to increased interest rates and additional interest
expense associated with the $125.0 million of notes issued by Primus Financial
Products in December 2005.
SIX MONTHS ENDED JUNE 30 REVENUES
GAAP revenues for the six months ended June 30, 2006 were $70.8 million, an
increase of $77.3 million from the year-earlier period. The increase is mainly
attributable to the appreciation in the fair value of the portfolio as market
premium levels as of June 30, 2006 tightened relative to the prevailing rates at
June 30, 2005.
Economic revenues for the six months ended June 30, 2006 were $49.1 million, an
increase of 62% from $30.4 million in the year-earlier period.
Contributing to the growth in Economic revenues was a 35% increase in premium
income from Primus Financial's* credit swaps sold, to $33.0 million for the
first six months of 2006, compared with $24.4 million in the same period of
2005. The increase reflects the continued growth of Primus Financial's credit
swap portfolio.
Realized losses on the Primus Financial portfolio of credit swaps sold were $996
thousand for the first six months of 2006, compared with $3.0 million for the
same period of the prior year. These losses are attributable to our decision to
reduce 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.
Net credit swap revenue for PRS Trading was negative $261 thousand for the six
months ended June 30, 2006. PRS Trading commenced trading in January 2006,
therefore there is no prior period comparison. All components of net credit swap
revenue for PRS Trading are incorporated in our Economic Results.
Net total return swap revenue was $124 thousand for the first six months of
2006. There was no corresponding revenue in 2005, as this trading activity
commenced in April 2006. Net total return swap revenue is incorporated in our
Economic Results.
Consolidated interest income for six months ended June 30, 2006 was $13.4
million, an increase of approximately $6.9 million from the same period of 2005.
The increase is primarily driven by higher investment yields and an increase in
average invested balances. The average investment yield in the first six months
of 2006 increased to 4.23%, from an average of 2.92% in the same period of 2005.
SIX MONTHS ENDED JUNE 30 OPERATING AND FINANCING EXPENSES
Operating expenses, excluding financing costs, were $17.1 million for six months
ended June 30, 2006, compared with $13.7 million for the same period of 2005.
The increase in expenses is mainly attributable to the expansion of our business
operations in the second quarter of 2006, resulting in additional expenses
related to compensation, professional and legal fees.
Financing costs, comprising distributions on preferred shares and interest
expense, were $7.9 million for the six months ended June 30, 2006, compared with
$2.8 million in the year earlier period. The increase in financing costs was
primarily attributable to increased interest rates and additional interest
expense associated with the $125.0 million of notes issued by Primus Financial
Products in December 2005.
CREDIT SWAP PORTFOLIO- PRIMUS FINANCIAL*
Single Name Credit Swap
At June 30, 2006, Primus Financial's portfolio of single name credit swaps sold
totaled $15.0 billion, up 12% from $13.4 billion at December 31, 2005. There
were 550 reference entities in the portfolio at June 30, 2006 compared with 532
at December 31, 2005. The second quarter 2006 new transaction volume for single
name credit swaps sold was $655 million, with a weighted average premium of 33
basis points, and an average original tenor of 5.2 years. The weighted average
original premium on the $15.0 billion portfolio of single name credit swaps sold
as of June 30, 2006 was 44 basis points. Of the $655 million new transaction
volume for single name credit swaps sold, $15 million was attributable to credit
swaps against sub-investment grade reference entities (limited to the BB sector)
at a weighted average premium of 93 basis points.
Tranche
The second quarter 2006 new transaction volume for tranches sold was $200
million, with a weighted average premium of 114 basis points, and an average
original tenor of 7.2 years. Tranche notional sold was $350 million at June 30,
2006, with a weighted average premium of 105 basis points.
BALANCE SHEET
At June 30, 2006, total assets, on a GAAP basis, were $716.7 million, an
increase of 6% from $673.1 million at December 31, 2005. At June 30, 2006, net
shareholders' equity was $407.2 million, a 13% increase from $361.9 million at
December 31, 2005. GAAP book value per diluted share was $9.19 at June 30, 2006,
relative to $8.12 at December 31, 2005. Economic book value per diluted share
was $8.08 at June 30, 2006, relative to $7.45 at December 31, 2005.
Total cash, cash equivalents and available-for-sale investments at June 30, 2006
were $646.8 million, of which $590.7 million resides at Primus Financial.
Net unrealized gains on Primus credit and other swaps purchased and sold was
$46.1 million at June 30, 2006, up from $21.8 million at December 31, 2005. The
change was primarily due to declines in market credit swap premium levels, which
resulted in a net increase in the value of the consolidated portfolio.
EARNINGS CONFERENCE CALL
Primus Guaranty will host a conference call Tuesday, August 8, 2006, at 11:00 AM
(ET) with access available via Internet and telephone. To access the live
conference call, dial (800) 573-4752 (toll-free domestic) or (617) 224-4324
(international). The access code is 98167935. 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 Tuesday, August 8, 2006, and can be accessed at (888) 286-8010 (toll-free
domestic) or (617) 801-6888 (international). The access code is 45653314. 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 one of its operating subsidiaries, 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. The other principal operating
subsidiary of Primus Guaranty, Primus Asset Management, Inc., provides credit
portfolio management services to Primus Financial, as well as 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.
*NOTE: Primus Financial revenues and portfolio details exclude the three credit
swap transactions with its affiliate (2nd quarter 2006 and 2005 premiums = $86
thousand and $86 thousand; notional = $87 million in both periods), Primus Re,
as the effects of the results of operations are eliminated in the consolidation.
PRIMUS GUARANTY, LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except per share amounts)
JUNE 30, DECEMBER 31,,
2006 2005
------------- -----------------
(unaudited)
ASSETS
Cash and cash equivalents............................................... $ 96,648 $ 69,355
Available-for-sale investments.......................................... 550,160 560,147
Accrued interest receivable............................................. 5,340 5,127
Accrued premiums and interest receivable on credit and other swaps...... 3,500 3,461
Premiums receivable on financial guarantees............................. 100 300
Unrealized gain on credit and other swaps, at fair value................ 50,440 25,342
Fixed assets and software costs, net.................................... 5,803 4,993
Debt issuance costs, net................................................ 3,074 3,147
Other assets............................................................ 1,665 1,210
------------- -----------------
Total assets....................................................... $ 716,730 $ 673,082
============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses................................... $ 1,793 $ 3,035
Compensation payable.................................................... 3,875 4,833
Interest payable........................................................ 160 404
Accrued premiums on credit swaps........................................ 26 -
Taxes payable........................................................... 46 54
Unrealized loss on credit and other swaps, at fair value................ 4,350 3,521
Deferred credit swap premiums........................................... 35 46
Deferred financial guarantee premiums................................... 200 401
Deferred rent payable................................................... 540 416
Long-term debt.......................................................... 200,000 200,000
------------- -----------------
Total liabilities.................................................. 211,025 212,710
Preferred securities of subsidiary...................................... 98,521 98,521
Stockholders' equity:
Common stock, $0.08 par value, 62,500,000 shares authorized, 43,306,084 and
43,176,511 shares issued and outstanding at June
30, 2006 and December 31, 2005..................................... 3,572 3,572
Additional paid-in-capital........................................... 267,547 265,848
Warrants............................................................. 612 612
Accumulated other comprehensive loss................................. (6,383) (4,254)
Retained earnings ................................................... 141,836 96,073
------------- -----------------
Total stockholders' equity.......................................... 407,184 361,851
------------- -----------------
Total liabilities, preferred securities of subsidiary and
stockholders' equity................................................ $ 716,730 $ 673,082
============= =================
PRIMUS GUARANTY, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ----------------------------
2006 2005 2006 2005
-------------- -------------- ------------ ---------------
(unaudited) (unaudited)
REVENUES
Net credit swap revenue (loss)................. $ 16,831 $ (3,579) $ 56,960 $ (11,777)
Net total return swap revenue................. 124 - 124 -
Premiums earned on financial guarantees....... 100 100 200 199
Asset management fees......................... 118 49 167 91
Interest income............................... 6,786 2,793 13,387 6,486
Investment portfolio realized gains........... - 23 - 23
Foreign currency revaluation loss............. (18) (955) (24) (1,519)
-------------- --------------------------- -------------
Total net revenues............................ 23,941 (1,569) 70,814 (6,497)
-------------- --------------------------- -------------
EXPENSES
Compensation and employee benefits............ 5,603 3,406 10,494 8,602
Professional and legal fees................... 1,069 796 2,284 1,750
Depreciation and amortization................. 608 525 1,197 1,041
Technology and data........................... 421 398 820 715
Interest expense.............................. 2,653 497 5,102 991
Other......................................... 1,291 853 2,330 1,618
-------------- --------------------------- -------------
Total expenses................................ 11,645 6,475 22,227 14,717
Distributions on preferred securities of
subsidiary................................. (1,638) (1,127) (2,769) (1,775)
-------------- --------------------------- -------------
Income (loss) before provision for income taxes 10,658 (9,171) 45,818 (22,989)
Provision for income taxes.................... - (9) (55) (45)
-------------- --------------------------- -------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHARES.. $ 10,658 $ (9,180) $ 45,763 $ (23,034)
============== =========================== =============
Income (loss) per common share:
Basic......................................... $ 0.25 $ (0.21) $ 1.06 $ (0.53)
Diluted....................................... $ 0.24 $ (0.21) $ 1.03 $ (0.53)
Average common shares outstanding:
Basic......................................... 43,294 43,108 43,270 43,160
Diluted....................................... 44,287 43,108 44,316 43,160
Microsoft Word 11.0.5604;PRIMUS GUARANTY, LTD.
REGULATION G DISCLOSURE
ECONOMIC RESULTS
JUNE 30, 2006
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 Primus Financial's* 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. The company believes that by
excluding quarterly fluctuations in the fair market value of the long-term
portfolio of swaps sold, which variations have little or no effect on the
company's operations, Economic Results provide a useful, and more meaningful,
alternative view of long-term trends in profitability.
(IN 000'S EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 31, JUNE 31,
---------------------- ---------------------
2006 2005 2006 2005
--------- --- ----- -------- ---------
GAAP NET INCOME $ 10,658 $ (9,180) $ 45,763 $(23,034)
Adjustments:
Less: Change in unrealized fair value of credit
swaps sold (gain)losses 121 14,258 (24,590) 34,198
Less: Realized gains from early termination of
credit swaps sold (111) (470) (613) (589)
Add: Amortization of realized gains from the early
termination of credit swaps sold 1,763 1,665 3,497 3,289
- -------------------------------------------------------------------------------------------------------------
NET ECONOMIC RESULTS $ 12,431 $ 6,273 $ 24,057 $ 13,864
- -------------------------------------------------------------------------------------------------------------
Economic earnings per diluted share $0.28 $0.14 $ 0.54 $0.31
Economic weighted average common shares outstanding-diluted
44,287 44,531 44,316 44,669
