Primus Guaranty, Ltd. Reports Third Quarter 2013 Results and Declares Distribution of $2.00 Per Common Share (11/08/13)
HAMILTON, Bermuda--(BUSINESS WIRE)--Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”) (OTC PINK:PRSG) today announced its financial results for the third quarter ended September 30, 2013.
• GAAP net income available to common shares for the third quarter 2013 was $12.2 million, or $0.53 per diluted share, compared with GAAP net income available to common shares of $108.2 million, or $3.84 per diluted share, for the third quarter 2012. GAAP net income available to common shares for the third quarter 2013 substantially resulted from a net unrealized mark-to-market gain of $9.2 million on Primus Financial Products, LLC (“Primus Financial”)'s credit swap portfolio.
• Economic Results for the third quarter 2013 were $3.0 million, or $0.13 per diluted share, compared with Economic Results of $3.5 million, or $0.12 per diluted share, for the third quarter 2012. 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.
• GAAP book value per common share was $10.67 at September 30, 2013, compared with GAAP book value per common share of $8.83 at December 31, 2012.
• Economic Results book value per common share was $10.69 at September 30, 2013, compared with Economic Results book value per common share of $10.19 at December 31, 2012.
• Primus Financial’s remaining single name credit swaps matured in the third quarter of 2013.
• At September 30, 2013, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $3.3 billion, compared with $4.1 billion at December 31, 2012.
Plan of Tax Liquidation, Distribution Authorization and PFIC Matters
The Company’s Board of Directors has adopted a Plan of Liquidation for U.S. Federal Income Tax Purposes (the “Plan of Tax Liquidation”) as the Company continues to implement its strategy of, among other things, seeking to return capital to shareholders.
Under the Plan of Tax Liquidation, the Board of Directors has declared a distribution of $2.00 per common share, payable December 11, 2013 to shareholders of record at the close of business on November 13, 2013. The aggregate distribution will total approximately $43.6 million based on 21,786,406 common shares outstanding on November 7, 2013. The Company believes that this distribution will be treated as a return of capital to a shareholder, to the extent of the shareholder’s tax basis in its shares, and thereafter as a capital gain, for U.S. federal tax purposes.
By adopting the Plan of Tax Liquidation, the Company has taken no action to commence the winding up and/or liquidation of the Company under its Bye-Laws, the Bermuda Companies Act 1981, or any other Bermuda law.
The Company believes that it is a “passive foreign investment company,” or PFIC, for U.S federal income tax purposes, and urges all shareholders to consult their own tax advisors concerning their particular circumstances and the U.S. federal tax treatment of this distribution as well as their further acquisition, ownership, or disposition of the Company’s common shares. Further information regarding the Company’s PFIC status is available on the Investor Relations page of the Company’s Web site at www.primusguaranty.com. The Company notes also that shareholders resident in the United States who own 1 percent or more of the Company’s common shares may have additional tax reporting to the U.S. Internal Revenue Service and accordingly such persons should consult their own tax advisors.
Given the reduction in the number of common shares outstanding and the projected maturities of Primus Financial’s credit swaps in 2013 and particularly 2014, the Company anticipates an increase in PFIC income per common share.
A copy of this press release, the Company’s financial supplement and a letter dated November 8, 2013 to the shareholders from Richard Claiden, Chief Executive Officer, are available in the Investor Relations section of the Company’s Web site at www.primusguaranty.com.
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; and
• A net adjustment in provision for credit default swaps on asset-backed securities (“CDS on ABS”) credit events, upon termination or principal write-down 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, the Company provides protection against the risk of default on primarily investment grade corporate reference entities. Its common shares trade on the OTC Pink Tier of the OTC market. Investors can find market information for the Company on www.otcmarkets.com. http://www.businesswire.com/news/home/20131108005116/en/Primus-Guaranty-Ltd.-Reports-Quarter-2013-Results