Primus Guaranty Reports First Quarter 2008 Financial Results.* Economic Results were $22.1 million and Economic EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. was $0.49 per share* Economic book value was $9.58 per share and record Economic ROE was 21.0% in the first quarter 2008 * GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). net loss was $670.1 million, substantially reflecting changes in the fair value of our credit swaps * New credit swap transaction volume was $1.2 billion bringing the total portfolio at March 31, 2008 to $24.3 billion * Credit protection premium income was $27.3 million, an increase of 48.4% from the first quarter 2007 HAMILTON, Bermuda -- Primus Guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. , Ltd. ("Primus Guaranty" or "the company") (NYSE NYSE See: New York Stock Exchange : PRS PRS Partnership (IRB) PRS Printer (File Name Extension) PRS Paul Reed Smith (Guitar Brand) PRS Pairs (shoe industry) ), a leading provider of credit protection, announced today a GAAP net loss of $670.1 million, or negative $14.85 per diluted share for the first quarter of 2008, compared with a GAAP net loss of $9.7 million, or negative $0.22 per diluted share for the first quarter of 2007. The GAAP net loss in the first quarter of 2008 substantially reflects changes in the unrealized market value of the company's credit swap portfolio resulting from widening credit spreads. Economic Results In managing its business and assessing its growth and profitability from a strategic and financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against perspective, the company believes it is appropriate to consider both its U.S. GAAP financial results as well as the impact on those results of fair value accounting and the early termination of credit swaps. Therefore, the company evaluates what its Economic Results would have been if it excluded from revenue the amounts of any unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and losses on Primus Financial's portfolio of credit swaps sold, any realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. from terminations of credit swaps sold prior to maturity, although it amortizes those gains over the remaining original lives of the terminated contracts, except for credit swaps undertaken as investments and any provisions for credit events. Applying these adjustments to GAAP revenues will derive "Economic Results revenues". The company believes that quarterly fluctuations in the fair market value of its credit swap portfolio have little or no effect on the company's operations. Economic Results provide a useful, and more meaningful, alternative view of the company's performance and long-term trends in profitability. During the first quarter of 2008, Economic Results were $22.1 million, or $0.49 per diluted share, compared with $13.2 million, or $0.30 per diluted share, in the first quarter of 2007. Commenting on the company's performance, Primus Guaranty, Ltd. Chief Executive Officer Thomas Jasper noted, "During the quarter we generated record Economic Results and a record Economic Return on Equity. While I am pleased with these results, the overall credit market environment in the first quarter was challenging and for the most part it remains challenging. We continue to be focused on the long-term and we are committed to leveraging our people, our credit market expertise, our flexible business model and our strong capital position to further build shareholder value." First Quarter Revenues Economic Results revenues for the first quarter 2008 were $38.8 million, an increase of 29.3% from $30.0 million in the year-earlier quarter. Primus Financial's premium income for the first quarter of 2008 was $27.3 million, compared with $18.4 million in the same period of 2007, an increase of 48.4%. The increase reflects the growth of Primus Financial's credit swap portfolio to $24.3 billion at the end of the first quarter 2008. Realized credit mitigation costs from the Primus Financial portfolio of credit swaps sold were $2 thousand in the first quarter of 2008, compared with $993 thousand for the same period of the prior year. During the first quarter of 2008, the company also recorded an additional charge of $189 thousand in relation to the CDS of ABS. During the fourth quarter of 2007, the company decided to discontinue Harrier harrier, breed of dog harrier, breed of medium-sized hound whose origin is obscure but whose existence in England dates from the 13th cent. It stands from 19 to 21 in. (48.3–53.3 cm) high at the shoulder and weighs from 40 to 50 lb (18.1–22. Credit Strategies Master Fund LP ("Harrier") and unwound un·wound v. Past tense and past participle of unwind. unwound unwind a significant portion of its portfolio. The remaining Harrier positions were closed in the first quarter of 2008, and the company realized a net trading gain of $711 thousand. Asset management fees on our corporate investment grade synthetic Collateralized Swap Obligations (CSO (Chief Security Officer) The person in charge of all staff members who are responsible for promulgating, enforcing and administering security policies for all systems within an enterprise or division. ) and Collateralized Loan Obligations Collateralized loan obligation (CLO) A security backed by a pool of commercial or personal loans , structured so that there are several classes of bondholders with varying maturities, called tranches. Similar in structure to Collateralized Mortgage Obligations. (CLO CLO See: Collateralized Loan Obligation. ) in the first quarter 2008 were $1.1 million, up from $661 thousand from the year earlier quarter. The increase was primarily due to fees related to Primus CLO II, Ltd., which commenced activity in July 2007. Consolidated interest income for the first quarter of 2008 was $9.2 million, a decrease of $800 thousand from $10.0 million in the first quarter of 2007. The decrease was primarily the result of a decline in short-term investment rates. The average investment yield in the first quarter of 2008 decreased to 4.28%, from 4.95% in the same quarter of 2007. The average investment balances were $860 million for the first quarter of 2008, compared with $806 million in the same quarter of 2007. The increase in invested balances was principally due to the operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. from business activities. GAAP revenues for the first quarter 2008 were negative $653.4 million, a decrease of $660.5 million from the year earlier quarter. The decline in GAAP revenues was substantially a result of increased unrealized mark-to-market losses on the portfolio of credit swaps, which was due to a widening in credit spreads. During the first quarter 2008, credit spreads widened substantially as the global credit markets experienced extremely difficult conditions, which led to greater volatility and a re-pricing of credit risk. The unrealized mark-to-market loss in Primus Financial was $686.8 million in the first quarter of 2008, compared with a loss of $21.3 million in the year earlier quarter. Effective January 1, 2008, the Company adopted the accounting provisions of SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 157, Fair Value Measurements and SFAS No. 159, The Fair Value Option for Financial Assets Financial assets Claims on real assets. and Liabilities. The adoption of FAS 157 impacted the fair value calculation of derivative liabilities through the inclusion of an adjustment for non-performance risk as required under the standard. First Quarter Operating and Financing Expenses Our operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were $10.0 million, excluding financing expenses, in the first quarter of 2008, compared with $10.0 million in the first quarter of 2007. Financing costs, which include distributions on preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. and interest expense, were $6.7 million in the first quarter of 2008, compared with $6.8 million in the year earlier quarter. The lower financing costs are mainly attributable to lower short-term interest rates Short-term interest rates Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commerical paper-having maturities of less than one year. Often called money market rates. . During the first quarter of 2008, our auction rate debt and preferred securities continued to reset at the maximum rates. The company's outstanding debt and preferred securities is all long-term, with the first maturity in 2021. Credit Swap Portfolio - Primus Financial At March 31, 2008, Primus Financial's combined portfolio of credit swaps sold totaled $24.3 billion compared with $23.0 billion at December 31, 2007. The combined portfolio had a weighted average original premium of 44.8 basis points, a weighted average rating of A/A A/A As Above A/A Answers All (swapping) A/A Air-to-Air A/A Angle of Attack A/A Acquisition Authority A/A Autoanswer A/A Analysis of Accounts A/A Attack Assessment A/A Analyst-to-Analyst A/A Advice of Allotment 3, and an average remaining tenor of 3.6 years as of March 31, 2008. Single Name Credit Swaps At March 31, 2008, Primus Financial's portfolio of single name credit swaps sold totaled $19.5 billion, with a weighted average premium of 44.8 basis points and a weighted average credit rating Weighted Average Credit Rating The weighted average of all the bond credit ratings in a bond fund. The measure gives investors an idea of how risky a fund's bonds are overall. The lower the weighted average credit, rating the riskier the bond fund. of A-/Baa1, which represented 594 reference entities. In the first quarter 2008, new transaction volume for single name credit swaps sold was $1.2 billion, with a weighted average premium of 71.4 basis points, an average original tenor of 5.17 years, and a weighted average credit rating of A-/A3. Bespoke be·spoke v. Past tense and a past participle of bespeak. adj. 1. Custom-made. Said especially of clothes. 2. Making or selling custom-made clothes: a bespoke tailor. Tranches At March 31, 2008, Primus Financial's bespoke tranches sold totaled $4.7 billion, with a weighted average premium of 43.1 basis points and a weighted average rating of AA+/Aa1. We did not transact any new bespoke tranches during the first quarter of 2008. Credit Swaps on Asset Backed Securities At March 31, 2008, Primus Financial's portfolio of credit swaps sold on asset backed securities (CDS of ABS) totaled $75.0 million, with a weighted average premium of 144.2 basis points. We did not transact any new CDS of ABS during the first quarter of 2008. In the fourth quarter of 2007, the company created a provision of $40.9 million in its Economic Results for credit events that occurred in January 2008 with respect to six credit swap transactions in the portfolio of CDS of ABS. During the first quarter of 2008, of the six ABS credit swaps which suffered a credit event, one counterparty delivered to Primus Financial an ABS security with a $5 million face amount and Primus Financial paid $5 million to the counterparty, which represented the notional amount The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change hands and is thus referred to as notional. on the swap. The swap was terminated as a result of the physical settlement and Primus Financial will no longer receive credit swap premiums from the counterparty. As the owner of the ABS, Primus Financial is entitled to receive payments of principal and interest thereon. Based on the value of the delivered bond at its delivery date, the company increased the provision by an additional $189 thousand in the first quarter of 2008. Balance Sheet At March 31, 2008, total assets, on a GAAP basis, were $900.6 million, an increase of $12.0 million from December 31, 2007. At March 31, 2008, GAAP net shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. was negative $763.7 million, compared with negative $93.5 million at December 31, 2007. GAAP book value per basic share was negative $16.89 as of March 31, 2008, compared with negative $2.08 at December 31, 2007. Economic equity was $433.1 million at March 31, 2008, compared with $409.9 million at December 31, 2007. Economic book value per basic share was $9.58 as of March 31, 2008, compared with $9.10 at December 31, 2007. Total cash, cash equivalents and available-for-sale investments at March 31, 2008 were $871.0 million, of which $773.9 million was held at Primus Financial. This capital supports Primus Financial's portfolio and its AAA/Aaa ratings. Net unrealized losses on Primus' portfolio of credit swaps was approximately $1.2 billion at March 31, 2008, compared with a $544.1 million loss at December 31, 2007. The change in net unrealized losses was due to increases in market credit swap premium levels, which resulted in a net decrease in the value of the consolidated portfolio. Earnings Conference Call Primus Guaranty will host a conference call Tuesday, May 6, 2008 at 11 a.m. Eastern Daylight Time to discuss its first quarter 2008 earnings, which are scheduled for release between 7 a.m. and 9 a.m. Eastern Daylight Time Tuesday, May 6, 2008. A copy of the earnings press release and financial supplement will be available in the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of the company's website, located at www.primusguaranty.com. The conference call will be available via live or archived webcast at http://ir.primusguaranty.com/ by dialing 800.299.7635 (domestic) and 617.786.2901 (international), Passcode 49602814. A replay of the call will be available from Tuesday, May 6, 2008 at 1 p.m. Eastern Daylight Time until Tuesday, May 27, 2008 at 5 p.m. Eastern Daylight Time. To listen to the replay, dial 888.286.8010 (domestic) or 617.801.6888 (international), Passcode 28930654. Supplemental financial information, including additional portfolio and historical data, will be available on Primus Guaranty, Ltd.'s website under "Investor Relations-Webcasts" or by clicking on www.primusguaranty.com About Primus Guaranty Primus Guaranty, Ltd. is a Bermuda company, with its principal operating subsidiaries, Primus Financial Products, LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control , and Primus Asset Management, Inc., headquartered in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. . Primus Financial Products offers protection against the risk of default on corporate, sovereign and asset backed security obligations through the sale of credit swaps to dealers and banks. As a swap counterparty, Primus Financial Products is rated Aaa by Moody's Investor Service, Inc. and AAA by Standard & Poor's Rating Services. Primus Asset Management provides credit portfolio management services to Primus Financial Products, and manages private investment vehicles, including two collateralized loan obligations and three synthetic collateralized swap obligations for third parties. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement Some of the statements included in this press release, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements that involve a number of risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. For a discussion of the factors that could affect our actual results please refer to the risk factors identified from time to time in our SEC reports, including, but not limited to, our Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , as filed with the SEC. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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