Primus Guaranty, Ltd. Reports First Quarter 2011 GAAP Net Income Available to Common Shares of $84.7 Million and Economic Resul

HAMILTON, Bermuda--([ BUSINESS WIRE ])--Primus Guaranty, Ltd. (aPrimus Guarantya or athe Companya) (NYSE:PRS) today announced its financial results for the first quarter ended March 31, 2011.

GAAP net income available to common shares for the first quarter 2011 was $84.7 million, or $2.21 per diluted share, compared with GAAP net income available to common shares of $86.5 million, or $2.15 per diluted share, for the first quarter 2010. GAAP net income available to common shares for the first quarter 2011 was driven by a net unrealized mark-to-market gain of $82.7 million on Primus Financial Products, LLC (aPrimus Financiala)a�s consolidated credit swap portfolio.
Economic Results for the first quarter 2011 were $8.7 million, or $0.23 per diluted share, compared with an Economic Results loss of $40.9 million, or $1.01 per diluted share, for the first quarter 2010. Economic Results for the first quarter 2011 was primarily a result of premium revenue of $11.2 million, gains on retirement of debt of $2.8 million, offset by net operating costs of $4.3 million.
Economic Results book value per common share was $7.53 at March 31, 2011, compared with Economic Results book value per common share of $7.31 at December 31, 2010.
At March 31, 2011, the notional principal of Primus Financiala�s consolidated credit swap portfolio totaled $9.6 billion.

Earnings

A copy of this press release and the financial supplement, including additional credit swap portfolio and historical data, is available in the Investor Relations section of the Companya�s Web site at [ www.primusguaranty.com ]. Also available on the Web site is a letter dated May 12, 2011 to the shareholders from Richard Claiden, Chief Executive Officer.

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 aEconomic Resultsa. 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;
A provision for credit default swaps on asset-backed securities (aCDS on ABSa) credit events is included in Economic Results; and
A reduction in provision for CDS on ABS credit events upon termination of credit swaps is included in Economic Results.

The Company believes that quarterly fluctuations in the fair market value of Primus Financiala�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 Companya�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 (aPrimus Financiala), the Company provides protection against the risk of default on primarily investment grade corporate and sovereign reference entities.

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, 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. 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.


Primus Guaranty, Ltd.
Condensed Consolidated Statements of Financial Condition (Unaudited)
(in thousands except share amounts)

	March 31,			December 31,
	2011			2010

Assets
Cash and cash equivalents	$	63,021		$	177,736
Investments (includes $381,585 and $288,815 at fair value as of
March 31, 2011 and December 31, 2010, respectively)		381,756			288,985
Restricted cash and investments		140,228			138,540
Accrued interest and premiums		6,935			5,860
Unrealized gain on credit swaps, at fair value		3,259			2,006
Debt issuance costs, net		3,856			4,072
Other assets (includes $10,947 and 11,559 at fair value as of
March 31, 2011 and December 31, 2010, respectively)		19,141			17,660
Total assets	$	618,196		$	634,859

Liabilities and Equity (deficit)
Liabilities
Accounts payable and accrued expenses	$	4,498		$	8,701
Unrealized loss on credit swaps, at fair value		313,679			395,164
Payable for credit events		2,963			3,447
Long-term debt		203,091			215,828
Restructuring liabilities		506			3,729
Other liabilities		7,670			6,025
Total liabilities		532,407			632,894


Equity (deficit)
Common shares, $0.08 par value, 62,500,000 shares authorized,
37,996,854 and 38,078,790 shares issued and outstanding at
March 31, 2011 and December 31, 2010, respectively		3,040			3,046
Additional paid-in capital		274,687			275,453
Accumulated other comprehensive income		3,229			3,333
Retained earnings (deficit)		(288,269	)		(372,969	)
Total shareholdersa� equity (deficit) of Primus Guaranty, Ltd		(7,313	)		(91,137	)
Preferred securities of subsidiary		93,102			93,102
Total equity (deficit)		85,789			1,965
Total liabilities and equity (deficit)	$	618,196		$	634,859


Primus Guaranty, Ltd.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands except per share amounts)

	Three Months Ended
	March 31,
	2011			2010
Revenues
Net credit swap revenue	$	86,098		$	87,530
Interest income		2,611			2,699
Gain on retirement of long-term debt		2,760			4,757
Other income		297			183
Total revenues		91,766			95,169

Expenses
Compensation and employee benefits		2,122			4,580
Professional and legal fees		822			1,485
Interest expense		1,567			1,869
Other		1,316			1,723
Total expenses		5,827			9,657
Income from continuing operations before
provision (benefit) for income taxes		85,939			85,512
Provision (benefit) for income taxes		10			140
Income from continuing operations, net of tax		85,929			85,372
Income (loss) from discontinued operations, net of
tax		(270	)		91,551
Net income		85,659			176,923
Less:
Distributions on preferred securities of subsidiary		959			988
Net income from discontinued operations
attributable to non-parent interests in CLOs		-			89,413
Net income available to common shares	$	84,700		$	86,522

Income per common share:
Basic:
Income from continuing operations	$	2.23		$	2.18
Income (loss) from discontinued operations	$	(0.01	)	$	0.06
Net income available to common shares	$	2.22		$	2.24
Diluted:
Income from continuing operations	$	2.21		$	2.09
Income (loss) from discontinued operations	$	(0.00	)	$	0.06
Net income available to common shares	$	2.21		$	2.15

Weighted average common shares outstanding:
Basic		38,124			38,686
Diluted		38,376			40,280

Primus Guaranty, Ltd.
Regulation G and Other Disclosure
Economic Results
March 31, 2011
(Unaudited)

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;
A provision for CDS on ABS credit events is included in Economic Results; and
A reduction in provision for CDS on ABS credit events upon termination of credit swaps is included in Economic Results.



Economic Results per GAAP Diluted Share

(in 000's except per share amounts)	Three Months Ended
	March 31,
	2011			2010
GAAP Net income (loss) available to common shares	$	84,700		$	86,522
Adjustments:
Change in unrealized fair value of credit swaps sold (gain) loss by Primus
Financial		(82,738	)		(127,136	)
Amortization of realized gains from the early termination of credit swaps sold by
Primus Financial		39			294
Provision for CDS on ABS credit events		(1,143	)		(2,374	)
Reduction in provision for CDS on ABS credit events upon termination of credit swaps		7,858			1,819
Economic Results	$	8,716		$	(40,875	)

Economic Results earnings (loss) per GAAP diluted share	$	0.23		$	(1.01	)
Economic Results weighted average common shares - GAAP diluted
		38,376			40,280

Economic Results Book Value per Share

	March 31,			December 31,
	2011			2010

GAAP Shareholders' equity (deficit) of Primus Guaranty, Ltd.	$	(7,313	)	$	(91,137	)
Adjustments:

Accumulated other comprehensive (income) loss		(3,229	)		(3,333	)
Unrealized fair value of credit swaps sold (gain) loss by Primus Financial		310,420			393,158
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		33,482			33,443
Provision for CDS on ABS credit events		(69,934	)		(68,791	)
Reduction in provision for CDS on ABS credit events upon termination of credit
swaps		56,433			48,575
Economic Results Shareholders' Equity	$	286,285		$	278,341

Economic Results book value per share issued and outstanding	$	7.53		$	7.31

GAAP book value per share issued and outstanding	$	(0.19	)	$	(2.39	)

Common shares issued and outstanding		37,997			38,079


Primus Guaranty, Ltd.
GAAP Net Credit Swap Revenue
March 31, 2011
(Unaudited)


GAAP Net Credit Swap Revenue

(in 000's)	Three Months Ended
	March 31,
	2011			2010
Net credit swap revenue components
Credit swaps sold - single name (Primus Financial)
Net premium income	$	7,580		$	12,566
Realized gains		-			-
Realized losses		-			(19,223	)
Change in unrealized gains/(losses)		17,555			36,050
Credit swaps sold - tranches (Primus Financial)
Net premium income		3,529			3,803
Realized gains		-
Realized losses		-			(35,000	)
Change in unrealized gains/(losses)		58,118			89,398
Credit swaps undertaken to offset credit risk (Primus Financial)
Net premium income (expense)		-			-
Net realized gains (losses)		47			-
Change in unrealized gains/(losses)		(59	)		(299	)
Credit swaps sold - ABS (Primus Financial)
Net premium income		62			67
Realized gains		-			-
Realized losses		(7,858	)		(1,819	)
Change in unrealized gains/(losses)		7,124			1,987
Net credit swap revenue	$	86,098		$	87,530

Contributing Sources

Market Wire

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Primus Guaranty, Ltd. Reports First Quarter 2011 GAAP Net Income Available to Common Shares of $84.7 Million and Economic Resul