Primus Declares GAAP Net Loss For Q/3 2011
Bermuda’s Primus Guaranty, Ltd. today [Nov.8] 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 unrealised mark-to-market loss of $293.3 million on Primus Financial Products, LLC’s 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 Financial’s consolidated credit swap portfolio totaled $8.5 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 US Generally Accepted Accounting Principles net income (loss) available to common shares as well as certain non-GAAP financial measures called “Economic Results”.
- Primus define Economic Results as GAAP net income (loss) available to common shares, adjusted as follows:
- Unrealised gains (losses) on credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;
- Realised gains from early termination of credit swaps sold by Primus Financial are excluded from GAAP net income (loss) available to common shares;
- Realised 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 (“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 its business operations and that Economic Results provides a useful, alternative view of Primus” economic performance.
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.
