Primus Guaranty, Ltd. Reports Second Quarter 2011 GAAP Net Income Available to Common Shares of $61.1 Million and Economic Resu

HAMILTON, Bermuda--([ BUSINESS WIRE ])--Primus Guaranty, Ltd. (aPrimus Guarantya or athe Companya) (NYSE:PRS) today announced its financial results for the second quarter ended June 30, 2011.

GAAP net income available to common shares for the second quarter 2011 was $61.1 million, or $1.62 per diluted share, compared with a GAAP net loss available to common shares of $188.4 million, or $4.84 per diluted share, for the second quarter 2010. GAAP net income available to common shares for the second quarter 2011 was driven by a net unrealized mark-to-market gain of $57.5 million on Primus Financial Products, LLC (aPrimus Financiala)a�s consolidated credit swap portfolio.
Economic Results for the second quarter 2011 were $5.4 million, or $0.14 per diluted share, compared with an Economic Results of $6.8 million, or $0.18 per diluted share, for the second quarter 2010. Economic Results for the second quarter 2011 were primarily a result of premium revenue of $10.2 million, offset by net credit mitigation costs of $4.7 million and net operating costs of $3.3 million.
Economic Results book value per common share was $7.76 at June 30, 2011, compared with Economic Results book value per common share of $7.31 at December 31, 2010.
At June 30, 2011, the notional principal of Primus Financiala�s consolidated credit swap portfolio totaled $9.3 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 August 9, 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)

	June 30,		December 31,
	2011		2010

Assets
Cash and cash equivalents	$	115,516	$	177,736
Investments (includes $335,856 and $288,815 at fair value as of June 30, 2011 and December 31, 2010, respectively)		336,027		288,985
Restricted cash and investments		135,080		138,540
Accrued interest and premiums		5,632		5,860
Unrealized gain on credit swaps, at fair value		2,396		2,006
Debt issuance costs, net		3,865		4,072
Other assets (includes $9,605 and $11,559 at fair value as of June 30, 2011 and December 31, 2010, respectively)		12,840		17,660
Total assets	$	611,356	$	634,859

Liabilities and Equity
Liabilities
Accounts payable and accrued expenses	$	4,401	$	8,701
Unrealized loss on credit swaps, at fair value		255,364		395,164
Payable for credit events		2,531		3,447
Long-term debt		202,688		215,828
Restructuring liabilities		61		3,729
Other liabilities		3,440		6,025
Total liabilities		468,485		632,894


Equity (deficit)
Common shares, $0.08 par value, 62,500,000 shares authorized, 37,239,493 and 38,078,790 shares issued and
outstanding at June 30, 2011 and December 31, 2010, respectively		2,978		3,046
Additional paid-in capital		272,069		275,453
Accumulated other comprehensive income		4,810		3,333
Retained earnings (deficit)		(227,132)		(372,969)
Total shareholdersa� equity (deficit) of Primus Guaranty, Ltd		52,725		(91,137)
Preferred securities of subsidiary		90,146		93,102
Total equity		142,871		1,965
Total liabilities and equity	$	611,356	$	634,859


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

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011	2010

Revenues
Net credit swap revenue (loss)	$	61,009	$	(189,708)	$	147,107	$	(102,178)
Interest income		2,569		3,541		5,180		6,240
Gain on retirement of long-term debt		-		2,676		2,760		7,433
Other income (loss)		321		(51)		618		132
Total revenues		63,899		(183,542)		155,665		(88,373)

Expenses
Compensation and employee benefits		1,570		4,546		3,692		9,126
Professional and legal fees		674		2,178		1,496		3,663
Interest expense		1,546		1,737		3,113		3,606
Other		1,077		1,777		2,393		3,500
Total expenses		4,867		10,238		10,694		19,895
Income (loss) from continuing operations before provision (benefit) for income taxes		59,032		(193,780)		144,971		(108,268)
Provision (benefit) for income taxes		1		(113)		11		27
Income (loss) from continuing operations, net of tax		59,031		(193,667)		144,960		(108,295)
Income (loss) from discontinued operations, net of tax		2,808		(119,937)		2,538		(28,386)
Net income (loss)		61,839		(313,604)		147,498		(136,681)
Less:
Distributions on preferred securities of subsidiary		702		724		1,661		1,712
Net loss from discontinued operations attributable to non-parent interests in CLOs		-		(125,934)		-		(36,521)
Net income (loss) available to common shares	$	61,137	$	(188,394)	$	145,837	$	(101,872)

Income (loss) per common share:
Basic:
Income (loss) from continuing operations	$	1.55	$	(5.00)	$	3.78	$	(2.84)
Income (loss) from discontinued operations	$	0.08	$	0.16	$	0.07	$	0.21
Net income (loss) available to common shares	$	1.63	$	(4.84)	$	3.85	$	(2.63)
Diluted:
Income (loss) from continuing operations	$	1.55	$	(5.00)	$	3.76	$	(2.84)
Income (loss) from discontinued operations	$	0.07	$	0.16	$	0.07	$	0.21
Net income (loss) available to common shares	$	1.62	$	(4.84)	$	3.83	$	(2.63)

Weighted average common shares outstanding:
Basic		37,638		38,903		37,881		38,795
Diluted		37,837		38,903		38,124		38,795

Primus Guaranty, Ltd.

Regulation G and Other Disclosure

Economic Results

June 30, 2011

(Unaudited)

		a		Unrealized gains (losses) on credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;
		a		Realized gains from early termination of credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;
		a		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		A provision for CDS on ABS credit events is included in Economic Results; and
		a		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						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
GAAP Net income (loss) available to common shares	$	61,137		$	(188,394	)	$	145,837		$	(101,872	)
Adjustments:
Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial		(57,452	)		194,963			(140,190	)		67,827
Amortization of realized gains from the early termination of credit swaps sold by Primus Financial		30			264			69			558
Provision for CDS on ABS credit events		(255	)		-			(1,398	)		(2,374	)
Reduction in provision for CDS on ABS credit events upon termination of credit swaps		1,983			-			9,841			1,819
Economic Results	$	5,443		$	6,833		$	14,159		$	(34,042	)

Economic Results earnings (loss) per GAAP diluted share	$	0.14		$	0.18		$	0.37		$	(0.88	)

Economic Results weighted average common shares - GAAP diluted		37,837			38,903			38,124			38,795

Economic Results Book Value per Share

	June 30,			December 31,
	2011			2010

GAAP Shareholders' equity (deficit) of Primus Guaranty, Ltd.	$	52,725		$	(91,137	)
Adjustments:

Accumulated other comprehensive (income) loss		(4,810	)		(3,333	)
Unrealized fair value of credit swaps sold (gain) loss by Primus Financial		252,968			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		33,512			33,443
Provision for CDS on ABS credit events		(70,189	)		(68,791	)
Reduction in provision for CDS on ABS credit events upon termination of credit swaps		58,416			48,575
Economic Results Shareholders' Equity	$	289,048		$	278,341

Economic Results book value per share issued and outstanding	$	7.76		$	7.31

GAAP book value per share issued and outstanding	$	1.42		$	(2.39	)

Common shares issued and outstanding		37,239			38,079


Primus Guaranty, Ltd.
GAAP Net Credit Swap Revenue (Loss)
June 30, 2011
(Unaudited)



GAAP Net Credit Swap Revenue (Loss)

(in 000's)	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net credit swap revenue (loss) components
Credit swaps sold - single name (Primus Financial)
Net premium income	$	6,677		$	11,626		$	14,257		$	24,192
Realized gains		-			-						-
Realized losses		(652	)		(7,073	)		(652	)		(26,296	)
Change in unrealized gains/(losses)		24,504			(34,506	)		42,059			1,544
Credit swaps sold - tranches (Primus Financial)
Net premium income		3,526			3,583			7,055			7,386
Realized gains		-			-						-
Realized losses		(4,032	)		-			(4,032	)		(35,000	)
Change in unrealized gains/(losses)		30,701			(164,691	)		88,819			(75,293	)
Credit swaps undertaken to offset credit risk (Primus Financial)
Net premium income (expense)		-			(45	)		-			(45	)
Net realized gains (losses)		-			(2,938	)		47			(2,938	)
Change in unrealized gains/(losses)		-			3,236			(59	)		2,937
Credit swaps sold - ABS (Primus Financial)
Net premium income		21			66			83			133
Realized gains		-			-			-			-
Realized losses		(1,983	)		-			(9,841	)		(1,819	)
Change in unrealized gains/(losses)		2,247			998			9,371			2,985
Net credit swaps (PARC fund)		-			36			-			36
Net credit swap revenue (loss)	$	61,009		$	(189,708	)	$	147,107		$	(102,178	)

Contributing Sources

Market Wire

N@N

Primus Guaranty, Ltd. Reports Second Quarter 2011 GAAP Net Income Available to Common Shares of $61.1 Million and Economic Resu