Primus Revenues, Profits Drop
Bermuda-based Primus Guaranty, Ltd. today announced its financial results for the fourth quarter and full year ended December 31, 2010.
Primus Guaranty, Ltd. is a Bermuda company with offices in New York.
Through its subsidiary, Primus Financial Products, LLC, the company provides protection against the risk of default on primarily investment grade corporate and sovereign reference entities.
Primus’ fourth-quarter net income available to common shares of $128.3 million or $3.30 per share, much lower than $295 million or $7.21 per share reported in the fourth quarter of previous year.
Economic results for the quarter was a loss of $4.8 million or $0.12 per share compared to a loss of $35.5 million or $0.87 per share last year. Economic Results mainly excludes the impact of changes in the fair value of Primus Financial’s credit swap portfolio from net income.
Total revenues for the quarter dropped to $148.85 million from $307.13 million in the comparable quarter a year ago.
- 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.
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.
