Primus Guaranty, Ltd. Reports Third Quarter 2011 GAAP Net Loss Available to Common Shares of $283.1 Million and Economic Result

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

GAAP net loss available to common shares for the third quarter 2011 was $283.1 million, or $7.76 per diluted share, compared with GAAP net income available to common shares of $229.0 million, or $5.72 per diluted share, for the third quarter 2010. GAAP net loss available to common shares for the third quarter 2011 was substantially due to a net unrealized mark-to-market loss of $293.3 million on Primus Financial Products, LLC (aPrimus Financiala)as consolidated credit swap portfolio.
Economic Results for the third quarter 2011 were $10.2 million, or $0.28 per diluted share, compared with an Economic Results loss of $2.0 million, or $0.05 per diluted share, for the third quarter 2010. Economic Results for the third quarter 2011 primarily comprised premium revenue of $9.9 million, interest income of $2.4 million, and gains on retirement of debt of $2.1 million, partly offset by net operating costs of $3.1 million and financing costs of $2.1 million.
Economic Results book value per common share was $8.20 at September 30, 2011, compared with Economic Results book value per common share of $7.31 at December 31, 2010.
At September 30, 2011, the notional principal of Primus Financialas consolidated credit swap portfolio totaled $8.5 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 Companyas Web site at [ www.primusguaranty.com ]. Also available on the Web site is a letter dated November 8, 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 Financialas 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 Companyas 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)

	September 30,			December 31,
	2011			2010
Assets
Cash and cash equivalents	$	107,299		$	177,736
Investments (includes $328,743 and $288,815 at fair value as of September 30, 2011 and December 31, 2010, respectively)		328,914			288,985
Restricted cash and investments		136,882			138,540
Accrued interest and premiums		5,405			5,860
Unrealized gain on credit swaps, at fair value		-			2,006
Debt issuance costs, net		3,706			4,072
Other assets (includes $8,504 and $11,559 at fair value as of September 30, 2011 and December 31, 2010, respectively)		12,422			17,660
Total assets	$	594,628		$	634,859

Liabilities and Equity
Liabilities
Accounts payable and accrued expenses	$	4,285		$	8,701
Unrealized loss on credit swaps, at fair value		546,266			395,164
Payable for credit events		2,092			3,447
Long-term debt		191,511			215,828
Restructuring liabilities		36			3,729
Other liabilities		3,357			6,025
Total liabilities		747,547			632,894

Commitments and contingencies
Equity (Deficit)
Common shares, $0.08 par value, 62,500,000 shares authorized, 35,334,749 and 38,078,790 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		2,825			3,046
Additional paid-in capital		262,621			275,453
Accumulated other comprehensive income		1,726			3,333
Retained earnings (deficit)		(510,237	)		(372,969	)
Total shareholdersa equity (deficit) of Primus Guaranty, Ltd		(243,065	)		(91,137	)
Preferred securities of subsidiary		90,146			93,102
Total equity (deficit)		(152,919	)		1,965
Total liabilities and equity	$	594,628		$	634,859

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Revenues
Net credit swap revenue (loss)	$	(283,404	)	$	227,547		$	(136,297	)	$	125,369
Interest income		2,436			3,674			7,616			9,914
Gain on retirement of long-term debt		2,061			752			4,821			8,185
Other income		153			2,513			771			2,645
Total revenues		(278,754	)		234,486			(123,089	)		146,113

Expenses
Compensation and employee benefits		1,443			4,036			5,135			13,162
Professional and legal fees		706			1,742			2,202			5,405
Interest expense		1,445			1,760			4,558			5,366
Other		994			1,851			3,387			5,351
Total expenses		4,588			9,389			15,282			29,284
Income (loss) from continuing operations before provision (283,342) (benefit) for income taxes					225,097			(138,371	)		116,829
Provision (benefit) for income taxes		-			71			11			98
Income (loss) from continuing operations, net of tax		(283,342	)		225,026			(138,382	)		116,731
Income (loss) from discontinued operations, net of tax		919			(19,622	)		3,457			(48,008	)
Net income (loss)		(282,423	)		205,404			(134,925	)		68,723
Less:
Distributions on preferred securities of subsidiary		682			732			2,343			2,444
Net loss from discontinued operations attributable to non-parent interests in CLOs		-			(24,355	)		-			(60,876	)
Net income (loss) available to common shares	$	(283,105	)	$	229,027		$	(137,268	)	$	127,155

Income (loss) per common share:
Basic:
Income (loss) from continuing operations	$	(7.79	)	$	5.90		$	(3.76	)	$	2.97
Income (loss) from discontinued operations	$	0.03		$	0.12		$	0.09		$	0.33
Net income (loss) available to common shares	$	(7.76	)	$	6.02		$	(3.67	)	$	3.30
Diluted:
Income (loss) from continuing operations	$	(7.79	)	$	5.60		$	(3.76	)	$	2.80
Income (loss) from discontinued operations	$	0.03		$	0.12		$	0.09		$	0.32
Net income (loss) available to common shares	$	(7.76	)	$	5.72		$	(3.67	)	$	3.12

Weighted average common shares outstanding:
Basic		36,470			38,049			37,411			38,546
Diluted		36,470			40,042			37,411			40,737

Primus Guaranty, Ltd.
Regulation G and Other Disclosure
Economic Results
September 30, 2011
(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 aEconomic Resultsa. We define Economic Results as GAAP net income (loss) available to common shares, adjusted as follows:


i' Unrealized gains (losses) on credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares; i' Realized gains from early termination of credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares; i' 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; i' A provision for CDS on ABS credit events is included in Economic Results; and i' 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 Financialas 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 Companyas economic performance.

Economic Results per GAAP Diluted Share

(in 000's except per share amounts)	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
GAAP Net income (loss) available to common shares	$	(283,105	)	$	229,027		$	(137,268	)	$	127,155
Adjustments:
Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial		293,298			(231,173	)		153,108			(163,346	)
Amortization of realized gains from the early termination of credit swaps sold by Primus Financial		25			145			94			703
Provision for CDS on ABS credit events		-			-			(1,398	)		(2,374	)
Reduction in provision for CDS on ABS credit events upon termination of credit swaps		-			-			9,841			1,819
Economic Results	$	10,218		$	(2,001	)	$	24,377		$	(36,043	)

Economic Results earnings (loss) per GAAP diluted share	$	0.28		$	(0.05	)	$	0.65		$	(0.88	)
Economic Results weighted average common shares - GAAP diluted
		36,470			40,042			37,411			40,737

Economic Results Book Value per Share

	September 30,			December 31,
	2011			2010

GAAP Shareholders' equity (deficit) of Primus Guaranty, Ltd.	$	(243,065	)	$	(91,137	)
Adjustments:

Accumulated other comprehensive (income) loss		(1,726	)		(3,333	)
Unrealized fair value of credit swaps sold (gain) loss by Primus Financial		546,266			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		33,537			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	$	289,665		$	278,341

Economic Results book value per share issued and outstanding	$	8.20		$	7.31

GAAP book value per share issued and outstanding	$	(6.88	)	$	(2.39	)

Common shares issued and outstanding		35,335			38,079

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

GAAP Net Credit Swap Revenue (Loss)

(in 000's)	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net credit swap revenue (loss) components
Credit swaps sold - single name (Primus Financial)
Net premium income	$	6,241		$	10,794		$	20,498		$	34,986
Realized gains		-			-			-			-
Realized losses		-			(13,706	)		(652	)		(40,002	)
Change in unrealized gains/(losses)		(24,704	)		78,437			17,355			79,981
Credit swaps sold - tranches (Primus Financial)
Net premium income		3,607			3,303			10,662			10,689
Realized gains		-			-			-			-
Realized losses		-			-			(4,032	)		(35,000	)
Change in unrealized gains/(losses)		(268,978	)		147,643			(180,159	)		72,350
Credit swaps undertaken to offset credit risk (Primus Financial)
Net premium income (expense)		-			(42	)		-			(87	)
Net realized gains (losses)		-			(1,017	)		47			(3,955	)
Change in unrealized gains/(losses)		-			1,533			(59	)		4,470
Credit swaps sold - ABS (Primus Financial)
Net premium income		46			79			129			212
Realized gains		-			-			-			-
Realized losses		-			(2,778	)		(9,841	)		(4,597	)
Change in unrealized gains/(losses)		384			3,560			9,755			6,545
Net credit swaps (PARC fund)		-			(259	)		-			(223	)
Net credit swap revenue (loss)	$	(283,404	)	$	227,547		$	(136,297	)	$	125,369

Contributing Sources

Market Wire

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Primus Guaranty, Ltd. Reports Third Quarter 2011 GAAP Net Loss Available to Common Shares of $283.1 Million and Economic Result