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TMCNet:  Primus Guaranty, Ltd. Reports Fourth Quarter and Full Year 2013 Results

[February 18, 2014]

Primus Guaranty, Ltd. Reports Fourth Quarter and Full Year 2013 Results

HAMILTON, Bermuda --(Business Wire)--

Primus Guaranty, Ltd. ("Primus Guaranty" or "the Company") (OTC PINK:PRSG) today announced its financial results for the fourth quarter and full year ended December 31, 2013.

  • GAAP net income available to common shares for the fourth quarter 2013 was $4.8 million, or $0.22 per diluted share, compared with GAAP net income available to common shares of $59.5 million, or $2.23 per diluted share, for the fourth quarter 2012.
  • GAAP net income available to common shares for the full year 2013 was $52.2 million, or $2.17 per diluted share, compared with a GAAP net income available to common shares of $432.4 million, or $14.41 per diluted share, for the full year 2012. GAAP net income from continuing operations for the full year 2013 primarily was attributable to net credit swap revenue of $54.6 million, which included unrealized gains in the fair value of Primus Financial Products, LLC ("Primus Financial")'s consolidated credit swap portfolio of $39.5 million. GAAP net income from continuing operations for the full year 2012 primarily was attributable to net credit swap revenue of $439.0 million, which included unrealized gains in the fair value of Primus Financial's consolidated credit swap portfolio of $415.0 million.
  • Economic Results for the fourth quarter 2013 were $2.6 million, or $0.12 per diluted share. Economic Results for the full year 2013 were $12.8 million, or $0.53 per diluted share. The primary difference between GAAP net income and Economic Results is that changes in the fair value of Primus Financial's consolidated credit swap portfolio are not included in Economic Results. Economic Results for the fourth quarter of 2012 were $6.3 million, or $0.25 per diluted share. Economic Results for the full year 2012 were $24.4 million, or $0.93 per diluted share.
  • GAAP book value per common share was $8.89 at December 31, 2013, compared with GAAP book value per common share of $8.83 at December 31, 2012. Economic Results book value per common share was $8.82 at December 31, 2013, compared with Economic Results book value per common share of $10.19 at December 31, 2012. The December 31, 2013 GAAP and Economic Results book value per common share reflect the $2.00 distribution per common share that was paid in the fourth quarter 2013.
  • At December 31, 2013, the notional principal of Primus Financial's consolidated credit swap portfolio totaled $3.3 billion, compared with $4.1 billion at December 31, 2012.

Additional Information

A copy of this press release, the Company's financial supplement and details on Primus Financial's credit swap portfolio as of December 31, 2013, are available in the Investor Relations section of the Company's Web site at www.primusguaranty.com. Also available on the Web site is a letter dated February 18, 2014 to the shareholders from Richard Claiden, Chief Executive Officer, and, on the Tax Information page of the Investor Relations section, the PFIC annual information statement for the tax year ended December 31, 2013 and an estimate of the Company's 2014 PFIC income.

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 (News - Alert)") 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, distributions 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)

       
December 31, December 31,
2013 2012
 
Assets
Cash and cash equivalents $ 27,512 $ 51,860
Investments, at fair value 66,230 213,107
Restricted cash and investments 106,580 144,077
Accrued interest and premiums 1,270 3,210
Unrealized gain on credit swaps, at fair value 1,981 721
Debt issuance costs, net - 510
Other assets (includes $822 and $2,701 at fair value as of
December 31, 2013 and December 31, 2012, respectively)   1,366   4,019
Total assets $ 204,939 $ 417,504
 
Liabilities and Equity
Liabilities
Accounts payable and accrued expenses $ 4,447 $ 5,202
Unrealized loss on credit swaps, at fair value 5,453 43,682
Payable for credit events - 1,280
Long-term debt - 57,700
Other liabilities (includes $979 and $2,205 at fair value as of
December 31, 2013 and December 31, 2012, respectively)   1,281   2,721
Total liabilities $ 11,181 $ 110,585
 
Equity
Common shares, $0.08 par value, 62,500,000 shares authorized,
21,786,406 and 26,125,564 shares issued and outstanding
at December 31, 2013 and December 31, 2012, respectively 1,743 2,090
Additional paid-in capital 116,629 203,232
Accumulated other comprehensive income 538 2,723
Retained earnings   74,848   22,619
Total shareholders' equity of Primus Guaranty, Ltd 193,758 230,664
Preferred securities of subsidiary   -   76,255
Total equity   193,758   306,919
Total liabilities and equity $ 204,939 $ 417,504
 
       
Primus Guaranty, Ltd.
Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

 
Three Months Ended

December 31,

Year Ended

December 31,

2013   2012 2013   2012
 
Revenues
Net credit swap revenue $ 5,224 $ 59,521 $ 54,572 $ 438,961
Interest income 825 2,140 4,617 9,497
Gain on retirement of long-term debt - 1,056 - 2,638
Other income   215   424   1,854   1,429
Total revenues   6,264   63,141   61,043   452,525
 
Expenses
Compensation and employee benefits 818 1,797 3,863 7,117
Professional and legal fees 282 344 1,290 1,501
Interest expense - 638 692 9,587
Other   450   1,061   1,923   3,497
Total expenses   1,550   3,840   7,768   21,702
Income from continuing operations before provision
for income taxes 4,714 59,301 53,275 430,823
Provision for income taxes   (18)   -   1   97
Income from continuing operations, net of tax 4,732 59,301 53,274 430,726
Income from discontinued operations, net of tax   29   830   305   4,388
Net income 4,761 60,131 53,579 435,114
Less:
Distributions on preferred securities of subsidiary   -   595   1,350   2,726
Net income available to common shares $ 4,761 $ 59,536 $ 52,229 $ 432,388
 
Income per common share:
Basic:
Income from continuing operations $ 0.22 $ 2.21 $ 2.16 $ 14.30
Income from discontinued operations $ - $ 0.03 $ 0.01 $ 0.15
Net income available to common shares $ 0.22 $ 2.24 $ 2.17 $ 14.45
Diluted:
Income from continuing operations $ 0.22 $ 2.20 $ 2.16 $ 14.26
Income from discontinued operations $ - $ 0.03 $ 0.01 $ 0.15
Net income available to common shares $ 0.22 $ 2.23 $ 2.17 $ 14.41
 
Weighted average common shares outstanding:
Basic 21,841 26,766 24,053 30,189
Diluted 21,842 26,849 24,058 30,277
 

Note: Basic and diluted net income available to common shares for the year ended December 31, 2012 includes the impact of a $3.8 million gain that resulted from the purchase of $14.1 million (face value) Primus Financial preferred securities.

Primus Guaranty, Ltd.

Regulation G and Other Disclosure

Economic Results

December 31, 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

December 31,

Year Ended

December 31,

2013 2012 2013 2012
GAAP Net income available to common shares $ 4,761 $ 59,536 $ 52,229 $ 432,388
Adjustments:
Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial (2,114 ) (54,479 ) (39,489 ) (414,978 )
Amortization of realized gains from the early termination of credit swaps sold by Primus Financial 1 2 6 7
Net adjustment in provision for CDS on ABS credit events upon termination or principal write-down of credit swaps         -       1,218     73       6,964  
Economic Results       $ 2,648     $ 6,277   $ 12,819     $ 24,381  
 
Economic Results earnings per GAAP diluted share $ 0.12 $ 0.25 $ 0.53 $ 0.93

 

Economic Results weighted average common shares - GAAP diluted

21,842 26,849 24,058 30,277
 

Note: Economic Results earnings per GAAP diluted share for the year ended December 31, 2012 includes the impact of a $3.8 million gain that resulted from the purchase of $14.1 million (face value) Primus Financial preferred securities.

             
Economic Results Book Value per Share            
       
(in 000's except per share amounts)
December 31, December 31,
2013 2012
 
GAAP Shareholders' equity of Primus Guaranty, Ltd. $ 193,758 $ 230,664
Adjustments:
 
Accumulated other comprehensive (income) loss (538 ) (2,723 )
Unrealized fair value of credit swaps sold (gain) loss by Primus Financial 3,472 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 33,573 33,567
Provision for CDS on ABS credit events         (4,483 )     (4,556 )
Economic Results Shareholders' Equity       $ 192,208     $ 266,339  
 
Economic Results book value per share issued and outstanding $ 8.82 $ 10.19
 
GAAP book value per share issued and outstanding $ 8.89 $ 8.83
 
Common shares issued and outstanding 21,786 26,126


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