Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”)
(NYSE:PRS) today announced its financial results for the fourth
quarter and full year ended December 31, 2010.
- GAAP net income available to common
shares for the fourth quarter 2010 was $128.3 million, or $3.30 per
diluted share, compared with GAAP net income available to common
shares of $295.0 million, or $7.21 per diluted share, for the
fourth quarter 2009. GAAP net income from continuing operations for
the fourth quarter 2010 primarily was attributable to net credit
swap revenue of $142.4 million, which included unrealized gains in
the fair value of Primus Financial’s credit swap portfolio of
$133.2 million. GAAP net income for the fourth quarter 2009
primarily was attributable to unrealized gains in the fair value of
Primus Financial’s credit swap portfolio of $336.8 million.
- GAAP net income available to common
shares for the full year 2010 was $255.5 million, or $6.33 per
diluted share, compared with GAAP net income available to common
shares of $1.5 billion, or $35.26 per diluted share, for the full
year 2009. GAAP net income from continuing operations for the full
year 2010 primarily was attributable to net credit swap revenue of
$267.8 million, which included unrealized gains in the fair value
of Primus Financial’s credit swap portfolio of $296.5 million. GAAP
net income for the full year 2009 primarily was attributable to
unrealized gains in the fair value of Primus Financial’s credit
swap portfolio of $1.5 billion.
- Economic Results for the fourth quarter
2010 were $(4.8) million, or $(0.12) per diluted share. Economic
Results for the full year 2010 were $(40.8) million, or $(1.01) per
diluted share. The primary difference between GAAP net income and
Economic Results is that changes in the fair value of Primus
Financial’s credit swap portfolio are not included in Economic
Results. Economic Results for the fourth quarter 2009 were $(35.5)
million, or $(0.87) per diluted share, and for the full year 2009
were $(3.7) million, or $(0.09) per diluted share.
- Economic Results book value per common
share was $7.31 at December 31, 2010, compared with $8.48 at
December 31, 2009. The decline in Economic Results book value per
common share primarily was attributable to portfolio repositioning
transactions and termination payments by Primus Financial in
2010.
- The Company incurred $8.1 million of
restructuring costs in 2010, predominantly in the fourth quarter.
Included in restructuring costs were employee severance, occupancy
and data service cancellation costs, which the Company incurred to
reduce its ongoing expense base.
- The loss from discontinued operations
of $(50.4) million for the full year 2010 relates to the
collateralized loan obligation (“CLO”) business which Primus
divested in 2010. This loss includes standalone operating losses of
the CLOs under management of $(61.2) million for the CLO business
during 2010, which is attributable to non-parent interests and is
not included in net income attributable to Primus common
shareholders.
- At December 31, 2010, the notional
principal of Primus Financial’s consolidated credit swap portfolio
totaled $10.4 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 Company’s Web
site at www.primusguaranty.com. Also available on the Web site is a
letter dated February 24, 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 “Economic Results”. 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 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.
The Company believes that quarterly fluctuations in the fair
market value of Primus Financial’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 Company’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
(“Primus Financial”), 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.
Consolidated Statements of Financial
Condition (Unaudited)
(in thousands except share amounts)
December 31, December 31, 2010
2009 Assets Cash and cash equivalents $
177,736 $ 299,514 Investments (includes $288,815 and $274,275 at
fair value as of December 31, 2010 and 2009, respectively) 288,985
274,444 Restricted cash and investments 138,540 127,116 Accrued
interest and premiums 5,860 6,163 Unrealized gain on credit swaps,
at fair value 2,006 2,207 Goodwill and other intangible assets, net
- 8,017 Debt issuance costs, net 4,072 4,736 Other assets
17,660 10,550 Total assets $ 634,859 $
732,747
Liabilities and Equity (deficit)
Liabilities Accounts payable and accrued expenses $ 9,776 $
7,855 Unrealized loss on credit swaps, at fair value 395,164
691,905 Payable for credit events 3,447 28,596 Long-term debt
215,828 244,051 Restructuring liabilities 3,729 - Other liabilities
4,950 9,787 Total liabilities
632,894 982,194
Equity (deficit)
Common shares, $0.08 par value, 62,500,000 shares authorized,
38,078,790 and 38,267,546 shares issued and outstanding at December
31, 2010 and 2009, respectively 3,046 3,061 Additional paid-in
capital 275,453 280,685 Accumulated other comprehensive income
3,333 2,148 Retained earnings (deficit) (372,969 )
(628,443 ) Total shareholders’ equity (deficit) of Primus Guaranty,
Ltd (91,137 ) (342,549 ) Preferred securities of subsidiary
93,102 93,102 Total equity (deficit)
1,965 (249,447 ) Total liabilities and equity
(deficit) $ 634,859 $ 732,747
Primus Guaranty, Ltd.
Consolidated Statements of Operations
(Unaudited)
(in thousands except per share
amounts)
Three Months Ended
December 31,
Years Ended
December 31,
2010 2009 2010 2009
Revenues Net credit swap revenue $ 142,387 $ 301,203
$ 267,756 $ 1,455,802 Interest income 3,226 2,030 13,140 6,685 Gain
on retirement of long-term debt 1,681 3,560 9,866 43,151 Other
income 1,560 333 4,205 3,797 Total
revenues 148,854 307,126 294,967
1,509,435
Expenses Compensation and employee benefits
5,487 3,548 18,650 17,661 Professional and legal fees 1,314 1,834
6,718 6,848 Interest expense 1,666 2,022 7,031 9,116 Restructuring
costs 7,956 - 8,108 - Other 1,574 2,546 6,774
8,507 Total expenses 17,997 9,950
47,281 42,132 Income from continuing operations before
provision (benefit) for income taxes 130,857 297,176 247,686
1,467,303 Provision (benefit) for income taxes (232)
33 (134) 184 Income from continuing operations, net
of tax 131,089 297,143 247,820 1,467,119 Loss from discontinued
operations, net of tax (2,351) (1,465)
(50,358) (3,422) Net income 128,738 295,678 197,462
1,463,697 Less: Distributions on preferred securities of subsidiary
718 677 3,162 3,417 Net loss from discontinued operations
attributable to non-parent interests in CLOs (299) -
(61,174) -
Net income available to common
shares $ 128,319 $ 295,001 $ 255,474 $ 1,460,280 Income
(loss) per common share:
Basic: Income from continuing
operations $ 3.45 $ 7.55 $ 6.38 $ 36.46 Income (loss) from
discontinued operations $ (0.05) $ (0.04) $ 0.28 $ (0.08) Net
income available to common shares $ 3.40 $ 7.51 $ 6.66 $ 36.38
Diluted: Income from continuing operations $ 3.35 $ 7.25 $
6.06 $ 35.34 Income (loss) from discontinued operations $ (0.05) $
(0.04) $ 0.27 $ (0.08) Net income available to common shares $ 3.30
$ 7.21 $ 6.33 $ 35.26
Weighted average common shares
outstanding: Basic 37,732 39,276 38,361 40,142 Diluted 38,905
40,908 40,366 41,414
Primus Guaranty, Ltd.
Regulation G and Other Disclosure Economic Results
December 31, 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, 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.
The Company believes that quarterly fluctuations in the fair market
value of Primus Financial’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
Company’s economic performance.
Economic
Results per GAAP Diluted Share
(in
000's except per share amounts) Three Months Ended
December 31,
Year Ended
December 31,
2010 2009 2010 2009 GAAP Net income
(loss) available to common shares $ 128,319
$ 295,001 $ 255,474 $
1,460,280 Adjustments: Change in unrealized fair value of
credit swaps sold (gain) loss by Primus Financial (133,194 )
(336,799 ) (296,540 ) (1,483,763 ) Amortization of realized gains
from the early termination of credit swaps sold by Primus Financial
107 314 810 1,414 Provision for CDS on ABS credit events - (966 )
(2,374 ) (16,208 ) Reduction in provision for CDS on ABS credit
events upon termination of credit swaps -
6,912 1,819
34,540
Economic Results
$
(4,768
) $ (35,538 ) $
(40,811 ) $ (3,737
) Economic Results earnings (loss) per GAAP diluted share $
(0.12 ) $ (0.87 ) $ (1.01 ) $ (0.09 )
Economic Results weighted average common
shares - GAAP diluted
38,905 40,908 40,366 41,414
Economic
Results Book Value per Share
December
31, December 31, 2010 2009 GAAP
Shareholders' equity (deficit) of Primus Guaranty, Ltd.
$ (91,137 ) $ (342,549 )
Adjustments: Accumulated other comprehensive (income) loss (3,333 )
(2,148 ) Unrealized fair value of credit swaps sold (gain) loss by
Primus Financial 393,158 689,698 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 33,443 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
Economic Results Shareholders' Equity $
278,341 $ 324,399
Economic Results book value per share issued and outstanding $ 7.31
$ 8.48 GAAP book value per share issued and outstanding $
(2.39 ) $ (8.95 ) Common shares issued and outstanding
38,079 38,268
Primus Guaranty, Ltd. GAAP Net Credit Swap Revenue
December 31, 2010 (Unaudited)
GAAP Net Credit Swap Revenue
(in
000's) Three Months Ended
December 31,
Year Ended
December 31,
2010 2009 2010 2009 Net credit swap
revenue components Credit swaps sold - single name (Primus
Financial) Net premium income $ 8,798 $ 13,994 $ 43,784 $
64,824 Realized gains - - - 25 Realized losses - (37,711 ) (40,002
) (68,475 ) Change in unrealized gains/(losses) 28,072 127,482
108,053 658,245
Credit swaps sold - tranches (Primus
Financial) Net premium income 3,615 4,453 14,304 19,884
Realized gains - - - - Realized losses (6,683 ) (9,998 ) (41,683 )
(9,998 ) Change in unrealized gains/(losses) 108,542 204,385
180,892 800,833
Credit swaps undertaken to offset credit risk
(Primus Financial) Net premium income (expense) (14 ) - (101 )
11 Net realized gains (losses) 3,656 497 (299 ) (89 ) Change in
unrealized gains/(losses) (2,801 ) (430 ) 1,669 (1,973 )
Credit
swaps sold - ABS (Primus Financial) Net premium income 56 81
268 397 Realized gains - - - - Realized losses - (6,912 ) (4,597 )
(34,540 ) Change in unrealized gains/(losses) (619 ) 5,362 5,926
26,658
Net credit swap revenue (PARC fund) (235 )
- (458 ) -
Net credit swap
revenue $ 142,387 $ 301,203
$ 267,756 $ 1,455,802
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