PRS Prudential Financial Inc

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