Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”)
(NYSE:PRS) today announced its financial results for the third
quarter ended September 30, 2010.
- GAAP net income available to common
shares for the third quarter 2010 was $229.0 million, or $5.72 per
diluted share, compared with GAAP net income available to common
shares of $461.5 million, or $11.14 per diluted share, for the
third quarter 2009. GAAP net income available to common shares for
the third quarter 2010 was primarily attributable to a net
unrealized mark-to-market gain of $231.1 million on Primus
Financial Products, LLC (“Primus Financial”)’s consolidated credit
swap portfolio.
- Economic Results for the third quarter
2010 were $(2.0) million, or $(0.05) per diluted share, and mainly
comprise $14.2 million of premium income, $3.4 million of asset
management fees, a $17.5 million termination payment by Primus
Financial to Lehman Brothers Special Financing Inc. and $3.9
million of interest income. Economic Results for the third quarter
2009 were $(9.6) million, or $(0.23) per diluted share, and mainly
comprise $21.9 million of premium income, $1.3 million of asset
management fees, $21.5 million of net realized losses from credit
mitigation activities within Primus Financial’s portfolio of credit
swaps and $1.2 million of interest income.
- Economic Results book value per common
share was $7.61 at September 30, 2010, compared with $8.48 at
December 31, 2009. The decline in Economic Results book value per
share was primarily attributable to portfolio repositioning
transaction and termination payments by Primus Financial in
2010.
- At September 30, 2010, Primus Asset
Management (“PAM”) managed $3.3 billion of third party assets.
CypressTree Investment Management, LLC, a subsidiary of PAM
(“CypressTree”), managed or sub-advised $2.8 billion of
collateralized loan obligations (CLOs) at September 30, 2010. As
announced on September 22, 2010, the Company has entered into a
binding letter of intent to sell CypressTree to Commercial
Industrial Finance Corp.
- At September 30, 2010, the notional
principal of Primus Financial’s consolidated credit swap portfolio
totaled $11.8 billion.
Buyback Authorization
- The Company’s Board of Directors has
authorized an additional expenditure of up to $10 million of
available cash for the purchase of the Company’s common shares
and/or 7% Senior Notes. Purchases will be made at management’s
discretion. Approximately $18.9 million is currently available
under the buyback program, including the additional $10 million
authorization.
Consolidation of CLOs under Management
- Effective January 1, 2010, the Company
adopted ASC Topic 810, Consolidation, which required it to
consolidate the assets, liabilities, revenues and expenses of the
CLOs under its management. Although these CLOs are consolidated,
the assets of the CLOs are not available to the Company for general
operations or in satisfaction of the Company’s debt obligations.
The Company does not have any rights to or ownership of these
assets. Similarly, the Company does not have any obligation to
settle the liabilities of the CLOs. The Company has no contractual
obligation to fund or provide other financial support to any CLO.
As a result of the adoption of ASC Topic 810, Consolidation, the
Company established an “appropriated retained earnings from CLO
consolidation” account in the equity section of the condensed
consolidated statement of financial condition as required under the
standard.
Earnings
A copy of this press release and the financial supplement,
including additional credit swap portfolio and historical data,
will be 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 November 1, 2010 to the shareholders
from Thomas Jasper.
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 (which reflects
the deduction of net income (loss) attributable to non-parent
interests) 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 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 includes realized and unrealized gains and
losses on credit swap transactions undertaken by the Primus
Absolute Return Credit Fund. The Company believes that quarterly
fluctuations in the fair market value of Primus Financial’s 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 manager of corporate credit
assets and provider of credit protection. Primus manages
assets in structured credit funds and operating companies, across a
range of asset classes – including investment grade, high yield and
leveraged loans – using both cash and synthetic instruments.
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, 2010
2009 Assets Cash and cash equivalents $
132,674 $ 299,514 Investments (includes $365,770 and $274,275 at
fair value) 365,940 274,444 Restricted cash and investments 131,469
127,116 CLO cash and cash equivalents 133,970 - CLO loans and
securities, at fair value 2,479,970 - CLO other assets 20,287 -
Accrued interest and premiums 7,181 6,163 Unrealized gain on credit
swaps, at fair value 233 2,207 Goodwill and other intangible
assets, net 7,560 8,017 Other assets 14,573
15,286 Total assets $ 3,293,857 $ 732,747
Liabilities and Equity (deficit) Liabilities
Accounts payable and accrued expenses $ 5,123 $ 7,855 Unrealized
loss on credit swaps, at fair value 526,567 691,905 Payable for
credit events 4,038 28,596 CLO notes, at fair value 2,348,223 - CLO
other liabilities 67,056 - Long-term debt 223,433 244,051 Other
liabilities 34,841 9,787 Total
liabilities 3,209,281 982,194
Equity (deficit) Common
shares, $0.08 par value, 62,500,000 shares authorized, 37,563,002
and 38,267,546 shares issued and outstanding at September 30, 2010
and December 31, 2009 3,005 3,061 Additional paid-in capital
277,423 280,685 Accumulated other comprehensive income 6,684 2,148
Retained earnings (deficit) (500,401 ) (628,443 ) Appropriated
retained earnings from CLO consolidation 204,763
- Total shareholders’ equity (deficit) of Primus
Guaranty, Ltd (8,526 ) (342,549 ) Preferred securities of
subsidiary 93,102 93,102 Total equity
(deficit) 84,576 (249,447 ) Total liabilities
and equity (deficit) $ 3,293,857 $ 732,747
Primus Guaranty, Ltd.
Condensed Consolidated Statements of
Operations (Unaudited)
(in thousands except per share
amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2010 2009 2010 2009
Revenues Net credit swap revenue $ 227,547 $ 471,835
$ 125,369 $ 1,154,599 Net CLO loss (30,000 ) - (77,249 ) - CLO
interest income 22,859 - 65,791 - Asset management and advisory
fees 115 1,270 669 2,076 Interest income 3,675 1,218 9,916 4,716
Gain on retirement of long-term debt 752 643 8,185 39,591
Impairment loss on investments - - - (761 ) Other income
2,453 548 2,299 3,022
Total revenues 227,401 475,514 134,980
1,203,243
Expenses CLO interest
expense 9,823 - 23,918 - CLO other expenses 1,920 - 5,212 -
Compensation and employee benefits 5,080 6,418 16,271 15,699
Professional and legal fees 1,928 2,253 5,875 5,631 Interest
expense 1,760 2,026 5,366 7,094 Other 1,412
2,543 9,538 6,648 Total expenses
21,923 13,240 66,180 35,072
Income before provision for income taxes 205,478 462,274
68,800 1,168,171 Provision for income taxes 74
5 77 152 Net income 205,404 462,269
68,723 1,168,019 Distributions on preferred securities of
subsidiary 732 726 2,444 2,740 Net loss attributable to non-parent
interests in CLOs (24,355 ) - (60,876 )
-
Net income available to common shares $ 229,027
$ 461,543 $ 127,155 $ 1,165,279 Income
per common share: Basic $ 6.02 $ 11.54 $ 3.30 $ 28.82 Diluted $
5.72 $ 11.14 $ 3.12 $ 28.26 Average common shares outstanding:
Basic 38,049 39,999 38,546 40,430 Diluted 40,042 41,414 40,737
41,238
Primus Guaranty, Ltd.
Regulation G and Other
Disclosure
Economic Results
September 30, 2010
(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 (which reflects
the deduction of net income (loss) attributable to non-parent
interests) 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 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 includes realized and unrealized gains and
losses on credit swap transactions undertaken by the Primus
Absolute Return Credit Fund. The Company believes that quarterly
fluctuations in the fair market value of Primus Financial’s 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
September 30,
Nine Months Ended
September 30,
2010 2009 2010 2009 GAAP Net income
(loss) available to common shares $ 229,027
$ 461,543 $ 127,155 $
1,165,279 Adjustments: Change in unrealized fair value of
credit swaps sold (gain) loss by Primus Financial (231,173 )
(471,450 ) (163,346 ) (1,146,964 ) Realized gains from early
termination of credit swaps sold by Primus Financial - - - -
Amortization of realized gains from the early termination of credit
swaps sold by Primus Financial 145 339 703 1,100 Provision for CDS
on ABS credit events - - (2,374 ) (15,242 ) Reduction in provision
for CDS on ABS credit events upon termination of credit swaps
- - 1,819
27,628
Economic Results $
(2,001 ) $ (9,568 )
$ (36,043 ) $ 31,801
Economic Results earnings (loss) per GAAP diluted
share $ (0.05 ) $ (0.23 ) $ (0.88 ) $ 0.77
Economic Results weighted average common
shares - GAAP diluted
40,042 41,414 40,737 41,238
Economic Results Book Value per
Share
September 30, December 31, 2010
2009 GAAP Shareholders'
equity (deficit) of Primus Guaranty, Ltd. $
(8,526 ) $ (342,549 )
Adjustments: Accumulated other comprehensive (income) loss
(6,684 ) (2,148 ) Unrealized fair value of credit swaps sold (gain)
loss by Primus Financial 526,352 689,698 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 33,336 32,633 Provision for
CDS on ABS credit events (68,791 ) (66,417 ) Reduction in provision
for CDS on ABS credit events upon termination of credit swaps
48,575 46,756 Appropriated retained (earnings) from CLO
consolidation (204,763 ) -
Economic Results Shareholders' Equity $
285,925 $ 324,399
Economic Results book value per share issued and outstanding $ 7.61
$ 8.48 GAAP book value per share issued and outstanding $
(0.23 ) $ (8.95 ) Common shares issued and outstanding
37,563 38,268
Primus Guaranty, Ltd.
GAAP Net Credit Swap Revenue September 30,
2010 (Unaudited)
GAAP Net Credit Swap Revenue
(in 000's) Three Months Ended
September 30,
Nine Months Ended
September 30,
2010 2009 2010 2009 Net credit swap
revenue components Credit swaps sold - single name (Primus
Financial) Net premium income $ 10,794 $ 16,613 $ 34,986 $
50,830 Realized gains - - - 25 Realized losses (13,706 ) (20,914 )
(40,002 ) (30,764 ) Change in unrealized gains/(losses) 78,437
214,080 79,981 530,763
Credit swaps sold - tranches (Primus
Financial) Net premium income 3,303 5,200 10,689 15,431
Realized gains - - - - Realized losses - - (35,000 ) - Change in
unrealized gains/(losses) 147,643 261,924 72,350 596,448
Credit
swaps undertaken to offset credit risk (Primus Financial) Net
premium income (expense) (42 ) (13 ) (87 ) 11 Net realized gains
(losses) (1,017 ) (586 ) (3,955 ) (586 ) Change in unrealized
gains/(losses) 1,533 (795 ) 4,470 (1,543 )
Credit swaps sold -
ABS (Primus Financial) Net premium income 79 85 212 316
Realized gains - - - - Realized losses (2,778 ) - (4,597 ) (27,628
) Change in unrealized gains/(losses) 3,560 (3,759 ) 6,545 21,296
Net credit swap revenue (PARC fund) (259 ) -
(223 ) -
Net credit swap revenue
$ 227,547 $ 471,835
$ 125,369 $ 1,154,599
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