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Primus Guaranty Ltd (PRSG) SEC Filing 10-K Annual report for the fiscal year ending Sunday, December 31, 2006

Primus Guaranty Ltd

CIK: 1170593 Ticker: PRSG



                                                                    Exhibit 99.1

   PRIMUS GUARANTY REPORTS FOURTH QUARTER AND FULL YEAR 2006 FINANCIAL RESULTS

Hamilton, Bermuda - February 6, 2007 - Primus Guaranty, Ltd. ("Primus Guaranty")
(NYSE: PRS) announced today GAAP net income of $25.4 million, or $0.57 per
diluted share for its fourth quarter 2006, compared with a GAAP net income of
$3.1 million, or $0.07 per diluted share for the fourth quarter of 2005. For the
year ended December 31, 2006, GAAP net income was $94.9 million, or $2.13 per
diluted share, compared with a GAAP net income of $4.1 million, or $0.09 per
diluted share, for the year ended December 31, 2005.

ECONOMIC RESULTS
In managing its business and assessing its growth and profitability from a
strategic and financial planning 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 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 and losses
on Primus Financial's* portfolio of credit swaps sold, and any realized gains
from terminations of credit swaps sold prior to maturity, it amortizes those
gains over the remaining original lives of the terminated contracts, except for
credit swaps purchased as investments. The company believes that by excluding
quarterly fluctuations in the fair market value of the long-term portfolio of
swaps sold, which variations have little or no effect on the company's
operations, Economic Results provide a useful and more meaningful alternative
view of long-term trends in profitability.

During the fourth quarter of 2006, Economic Results were $14.5 million, or $0.33
per diluted share, compared with $12.2 million, or $0.28 per diluted share, in
the fourth quarter of 2005. For the year ended December 31, 2006, Economic
Results were $51.3 million, or $1.15 per diluted share, compared with Economic
Results of $36.4 million, or $0.82 per diluted share, for the year ended
December 31, 2005.

"During 2006 we made important strides in building our business, enhancing our
profitability and creating shareholder value. I am extremely pleased with the
accomplishments that were made," noted Primus Guaranty Chief Executive Officer,
Thomas Jasper. "During the fourth quarter, we saw the benefits of our enhanced
operating flexibility and began to see the results of our diversification into
different businesses and across various asset classes. We achieved quarterly
Economic Results of $14.5 million and Economic ROE of 15.3%, which was the
highest in Primus' history."


"As we look ahead, we will continue to focus on growing our credit swap revenues
while increasing assets under management to achieve diversification of income
streams. We firmly

believe that this strategy makes us extremely well positioned to capture opportunities in the credit markets and achieve consistent growth and profitability." FOURTH QUARTER ECONOMIC REVENUES Economic revenues for the fourth quarter 2006 were $29.1 million, an increase of 34% from $21.7 million in the year-earlier quarter. Contributing to the growth in Economic Revenues was a 19% increase in premium income from Primus Financial's* credit swaps sold, to $18.3 million in the fourth quarter of 2006, compared with $15.4 million in the same period of 2005. The increase reflects the continued growth of Primus Financial's credit swap portfolio to $15.8 billion. Realized losses on the Primus Financial portfolio of credit swaps sold were $951 thousand in the fourth quarter of 2006, compared with $318 thousand for the same period of the prior year. These losses are attributable to our decision to reduce credit exposure through the early termination of certain credit swaps sold. Since our inception, there have been no credit events in our portfolio of credit swaps sold. PRS Trading Strategies earned trading revenues of $1.4 million for the fourth quarter 2006. PRS Trading Strategies commenced trading in 2006, therefore there is no prior year comparison. Asset management fees for the fourth quarter of 2006 were $554 thousand compared with $50 thousand for the same period of the prior year. Consolidated interest income for the fourth quarter of 2006 was $7.8 million, an increase of approximately $2.7 million from the fourth quarter of 2005. The increase was primarily due to higher investment yields and an increase in average invested balances. The weighted average investment yield in the fourth quarter of 2006 increased to 4.70 %, from 4.05% in the fourth quarter of 2005. Weighted average balances were $667 million for the fourth quarter of 2006, compared with $500 million in the same quarter of 2005. On December 29, 2006, we received net proceeds of $121 million related to the issuance of long-term debt by Primus Guaranty, Ltd. FOURTH QUARTER OPERATING AND FINANCING EXPENSES Operating expenses, excluding financing costs, were $10.2 million for the fourth quarter of 2006, compared with $7.4 million in the fourth quarter of 2005. The increase in operating expenses from the year-earlier quarter is primarily attributable to increased headcount, occupancy and recruitment expenses due to the continued expansion of our business operations. Financing costs, comprising distributions on preferred shares and interest expense, were $4.4 million in the fourth quarter of 2006, compared with $2.1 million in the year earlier quarter. The increase in financing costs was primarily attributable to higher interest rates and additional interest expense associated with the $125 million of notes issued by Primus Financial Products in December 2005. YEAR ENDED DECEMBER 31, 2006 ECONOMIC REVENUES Economic revenues for the year ended December 31, 2006 were $104.3 million, an increase of 48% from $70.5 million for the year ended December 31, 2005. Contributing to the growth in Economic Revenues was a 29% increase in premium income from Primus Financial's* credit swaps sold, to $69.4 million for the year ended December 31, 2006, compared with $54.0 million in 2005. The increase reflects the continued growth of Primus Financial's credit swap portfolio. Realized losses on the Primus Financial portfolio of credit swaps sold were $3.5 million for the year ended December 31 2006, an average of 2 bps on the portfolio, compared with $4.8 million for the same period of the prior year. These losses are attributable to our decision to reduce credit exposure through the early termination of certain credit swaps sold. Since our inception, there have been no credit events in our portfolio of credit swaps sold. PRS Trading Strategies earned net trading revenues of $1.2 million for the year ended December 31, 2006. PRS Trading Strategies commenced trading in 2006, therefore there is no prior year comparison. Asset management fees for the year ended December 31, 2006 were $1.3 million, an increase of approximately $1.1 million from 2005. Consolidated interest income for year ended December 31, 2006 was $28.4 million, an increase of approximately $12.3 million from 2005. The increase was driven by higher investment yields and an increase in average invested balances. The weighted average investment yield increased to 4.39%, up 111 basis points from an average of 3.28% for 2005. Weighted average balances were $647 million for the year ended December 31, 2006, compared with $489 million for the year ended December 31, 2005. YEAR ENDED DECEMBER 31, 2006 OPERATING AND FINANCING EXPENSES Operating expenses, excluding financing costs, were $36.4 million for year ended December 31, 2006, compared with $27.5 million for 2005. 2006 operating expenses include a credit of approximately $650 thousand related to a reduction in stock compensation expense, and 2005 operating expenses include an $800 thousand accelerated compensation expense, both related to employee departures. The increase in expenses from the prior year is primarily attributable to increased headcount, occupancy, recruitment and professional fee expense due the expansion of our business operations. Financing costs, comprising distributions on preferred shares and interest expense, were $16.5 million for the year ended December 31, 2006, compared with $6.5 million in the year earlier period. The increase in financing costs was primarily attributable to higher interest rates in 2006 and the full year's interest expense associated with the $125 million of notes issued by Primus Financial Products in December 2005. CREDIT SWAP PORTFOLIO- PRIMUS FINANCIAL* Single Name Credit Swaps At December 31, 2006, Primus Financial's portfolio of single name credit swaps sold totaled $15.3 billion, up 14% from $13.4 billion at December 31, 2005. There were 560 reference entities in the portfolio at December 31, 2006 compared with 532 at December 31, 2005. The fourth quarter 2006 new transaction volume for single name credit swaps sold was $388 million, with a weighted average premium of 33 basis points, and an average original tenor of 5.1 years. The weighted average original premium on the $15.3 billion portfolio of single name credit swaps sold as of December 31, 2006 was 44 basis points. Of the $388 million new transaction volume for single name credit swaps sold, $5 million was attributable to credit swaps against sub-investment grade reference entities (limited to the BB sector) at a weighted average premium of 88 basis points. Tranches Tranches sold at December 31, 2006 was $500 million with a weighted average premium of 88 basis points and an average rating of AA/Aa3, an increase of $450 million from the prior year. The fourth quarter 2006 new transaction volume for tranches sold was $200 million, with a weighted average premium of 59 basis points, an average original tenor of 7.2 years and an average rating of AA/Aa2. Credit Swaps on Asset-backed Securities During December 2006, we received rating agency approval to sell credit protection on asset-backed securities. At December 31, 2006, credit swaps on asset-backed securities totaled $15 million with a weighted average original premium of 59 basis points. BALANCE SHEET At December 31, 2006, total assets, on a GAAP basis, were $902.5 million, an increase of 34% from $673.1 million at December 31, 2005. At December 31, 2006, net shareholders' equity was $462.1 million, a 28% increase from $361.9 million at December 31, 2005. GAAP book value per basic share was $10.65 at December 31, 2006, relative to $8.38 at December 31, 2005. Economic book value per basic share was $8.92 at December 31, 2006, relative to $7.69 at December 31, 2005. Total cash, cash equivalents and investments at December 31, 2006 were $803.9 million, of which $624.5 million resides at Primus Financial. Net unrealized gains on Primus' credit and other swaps purchased and sold was $70.4 million at December 31, 2006, up from $21.8 million at December 31, 2005. The change was primarily due to declines in market credit swap premium levels, which resulted in a net increase in the value of the consolidated portfolio. EARNINGS CONFERENCE CALL Primus Guaranty will host a conference call Tuesday, February 6, 2007 at 11:00 AM (ET) with access available via Internet and telephone. To access the live conference call, dial (866) 831-6270 (toll-free domestic) or (617) 213-8858 (international). The access code is 34939329. Please call to register at least 10 minutes before the conference call begins. A replay of the call will be available for three weeks via telephone starting at approximately 1:00 PM (ET) on Tuesday, February 6, 2007, and can be accessed at (888) 286-8010 (toll-free domestic) or (617) 801-6888 (international). The access code is 61450389. The webcast will be live as well as archived for one quarter on Primus Guaranty's website: www.primusguaranty.com. To access the webcast, refer to the investor relations section of the website, and click on the webcast icon in the center of the page. 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 http://phx.corporate-ir.net/phoenix.zhtml?c=179637&p=irol-presentations. ABOUT PRIMUS GUARANTY Primus Guaranty, Ltd., through one of its operating subsidiaries, Primus Financial Products, LLC, offers protection against the risk of default on corporate, sovereign and asset-backed security obligations. Primus Financial assumes these risks through the sale of credit swaps to dealers and banks. As a swap counterparty, Primus Financial is rated Aaa by Moody's Investor Service, Inc. and AAA by Standard & Poor's Rating Services. Another operating subsidiary of Primus Guaranty, Primus Asset Management, Inc., provides credit portfolio management services to Primus Financial, manages a collateralized loan obligation and three synthetic collateralized debt obligations for selected third parties and also manages PRS Trading Strategies, LLC. Primus Guaranty, Ltd. is traded on the New York Stock Exchange under the symbol PRS. Primus Guaranty is a Bermuda company, with the operations of its principal subsidiaries, Primus Financial Products, Primus Asset Management and PRS Trading Strategies, headquartered in New York City. SAFE HARBOR 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 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 10-K, as filed with the SEC. * NOTE: Primus Financial revenues & portfolio details exclude the three credit swap transactions with its affiliate (4rd quarter 2006 and 2005 premiums = $86 thousand and $86 thousand; notional = $87 million in 4th quarter 2005), Primus Re, as the effects of the results of operations are eliminated in the consolidation. PRIMUS GUARANTY, LTD. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands except per share amounts) DECEMBER 31, DECEMBER 31, 2006 2005 ----------------- --------------- (unaudited) ASSETS Cash and cash equivalents............................................... $ 204,428 $ 69,355 Available-for-sale securities........................................... 584,911 560,147 Trading account assets.................................................. 14,537 -- Accrued interest receivable............................................. 6,374 5,127 Accrued premiums and receivables on credit and other swaps.............. 4,022 3,461 Premiums receivable on financial guarantees............................. -- 300 Unrealized gain on credit and other swaps, at fair value................ 73,330 25,342 Fixed assets and software costs, net.................................... 5,510 4,993 Debt issuance costs, net................................................ 7,399 3,147 Other assets............................................................ 1,957 1,210 ----------------- --------------- Total assets....................................................... $ 902,468 $ 673,082 ================= =============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses................................... $ 2,854 $ 3,035 Accrued compensation.................................................... 8,800 4,833 Interest payable........................................................ 625 404 Accrued premiums on credit and other swaps.............................. 44 -- Taxes payable........................................................... 7 54 Unrealized loss on credit and other swaps, at fair value................ 2,931 3,521 Trading account liabilities............................................. 1,002 -- Deferred credit swap premiums........................................... 23 46 Deferred financial guarantee premiums................................... -- 401 Deferred rent payable................................................... 570 416 Long-term debt.......................................................... 325,000 200,000 ----------------- --------------- Total liabilities.................................................. 341,856 212,710 Preferred securities of subsidiary...................................... 98,521 98,521 STOCKHOLDERS' EQUITY Common stock, $0.08 par value, 62,500,000 shares authorized, 43,380,893 and 43,176,511 shares issued and outstanding at December 31, 2006 and 2005......................................... 3,470 3,454 Additional paid-in-capital........................................... 269,420 265,966 Warrants............................................................. 612 612 Accumulated other comprehensive loss................................. (2,375) (4,254) Retained earnings ................................................... 190,964 96,073 ----------------- --------------- Total stockholders' equity........................................... 462,091 361,851 ----------------- --------------- Total liabilities, preferred securities of subsidiary and stockholders' equity............................................... $ 902,468 $ 673,082 ================= =============== PRIMUS GUARANTY, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ---------------------- ------------------------ 2006 2005 2006 2005 ---------- --------- ----------- ---------- (unaudited) (unaudited) REVENUES Net credit swap revenue....................... $ 30,218 $ 7,434 $ 116,083 $ 23,106 Premiums earned on financial guarantees....... 100 105 400 405 Asset management and advisory fees............ 554 50 1,263 190 Interest income............................... 7,844 5,058 28,374 16,047 Other trading revenue......................... 1,257 -- 1,770 -- Foreign currency revaluation gain (loss)...... 30 (82) (26) (1,546) ---------- --------- ----------- ---------- Total net revenues............................ 40,003 12,565 147,864 38,202 ---------- --------- ----------- ---------- EXPENSES Compensation and employee benefits............ 5,995 3,796 21,512 15,935 Professional and legal fees................... 1,502 1,803 5,147 4,534 Depreciation and amortization................. 671 549 2,517 2,123 Technology and data........................... 881 380 2,427 1,630 Interest expense.............................. 2,916 1,020 10,849 2,660 Other......................................... 1,164 903 4,796 3,326 ---------- --------- ----------- ---------- Total expenses................................ 13,129 8,451 47,248 30,208 Distributions on preferred securities of subsidiary................................. (1,477) (1,068) (5,683) (3,865) ---------- --------- ----------- ---------- Income before (provision) benefit for income 25,397 3,046 94,933 4,129 taxes...................................... (Provision) benefit for income taxes.......... (1) 62 (42) (46) ---------- --------- ----------- ---------- NET INCOME AVAILABLE TO COMMON SHARES......... $ 25,396 $ 3,108 $ 94,891 $ 4,083 ========== ========= =========== ========== Income per common share: Basic......................................... $ 0.59 $ 0.07 $ 2.19 $ 0.09 Diluted....................................... $ 0.57 $ 0.07 $ 2.13 $ 0.09 Average common shares outstanding: Basic......................................... 43,369 43,156 43,306 43,150 Diluted....................................... 44,475 44,223 44,472 44,645 PRIMUS GUARANTY, LTD. REGULATION G DISCLOSURE ECONOMIC RESULTS DECEMBER 31, 2006 In managing its business and assessing its growth and profitability from a strategic and financial planning 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 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 and losses on Primus Financial's* portfolio of credit swaps sold, and any realized gains 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 purchased as investments. The company believes that by excluding quarterly fluctuations in the fair market value of the long-term portfolio of swaps sold, which variations have little or no effect on the company's operations, Economic Results provide a useful, and more meaningful, alternative view of long-term trends in profitability. -------------------------------------------------------------------------------- ECONOMIC EARNINGS PER DILUTED SHARE -------------------------------------------------------------------------------- (IN 000'S EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, -------------------- -------------------- 2006 2005 2006 2005 -------- -------- -------- -------- GAAP NET INCOME $ 25,396 $ 3,108 $ 94,891 $ 4,083 Adjustments: Less: Change in unrealized fair value of credit swaps sold (gain)losses (11,335) 7,631 (48,701) 26,639 Less: Realized gains from early termination of credit swaps sold (1,377) (300) (2,002) (1,090) Add: Amortization of realized gains from the early termination of credit swaps sold 1,824 1,756 7,098 6,783 ---------------------------------------------------------------------------------------------------------- NET ECONOMIC RESULTS $ 14,508 $ 12,195 $ 51,286 $ 36,415 ---------------------------------------------------------------------------------------------------------- Economic earnings per diluted share $ 0.33 $ 0.28 $ 1.15 $ 0.82 Economic weighted average common shares outstanding-diluted 44,475 44,223 44,472 44,645 -------------------------------------------------------------------------------- ECONOMIC BOOK VALUE PER SHARE -------------------------------------------------------------------------------- DECEMBER 31, DECEMBER 31, 2006 2005 ------------ ------------- GAAP SHAREHOLDERS' EQUITY $ 462,091 $ 361,851 Adjustments: Add: Accumulated other comprehensive (income) / loss 2,375 4,254 Less: Unrealized fair value of credit swaps sold (gain)/loss (70,522) (21,821) Less: Realized gains from early termination of credit swaps sold (30,083) (28,081) Add: Amortized realized gains from the early termination of credit swaps sold 23,002 15,904 -------------------------------------------------------------------------------------------- ECONOMIC SHAREHOLDERS' EQUITY $ 386,863 $ 332,107 -------------------------------------------------------------------------------------------- Economic book value per share-basic $ 8.92 $ 7.69 GAAP book value per share-basic $ 10.65 $ 8.38 Common shares outstanding-basic 43,381 43,177

The following information was filed by Primus Guaranty Ltd (PRSG) on Wednesday, February 7, 2007 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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SEC Filing Tools
Ticker: PRSG
CIK: 1170593
Form Type: 10-K Annual Report
Accession Number: 0000950136-07-001663
Submitted to the SEC: Thu Mar 15 2007 12:52:11 PM EST
Accepted by the SEC: Thu Mar 15 2007
Period: Sunday, December 31, 2006
Industry: Security And Commodity Brokers Dealers Exchanges And Services

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