PRS Prudential Financial Inc

Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”) (NYSE: PRS) today 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 unrealized mark-to-market loss of $293.3 million on Primus Financial Products, LLC (“Primus Financial”)’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.

Earnings

A copy of this press release and the financial supplement, including additional credit swap portfolio and historical data, is available in the Investor Relations section of the Company’s Web site at www.primusguaranty.com. Also available on the Web site is a letter dated November 8, 2011 to the shareholders from Richard Claiden, Chief Executive Officer.

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 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 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 (“Primus Financial”), the Company provides protection against the risk of default on primarily investment grade corporate and sovereign reference entities.

Forward-Looking Statements

Some of the statements included in this press release and other statements Primus Guaranty may make, particularly those anticipating future financial performance, business prospects, growth and operating strategies, market performance, valuations and similar matters, are forward-looking statements that involve a number of assumptions, risks and uncertainties, which change over time. Any such statements speak only as of the date they are made, and Primus Guaranty assumes no duty to, and does not undertake to, update any forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements, and future results could differ materially from historical performance. For a discussion of the factors that could affect the Company's actual results please refer to the risk factors identified from time to time in the Company's SEC reports, including, but not limited to, Primus Guaranty's Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission.

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(in thousands except share amounts)

    September 30,   December 31, 2011 2010 Assets Cash and cash equivalents $ 107,299 $ 177,736

Investments (includes $328,743 and $288,815 at fair value as of September 30, 2011 and December 31, 2010, respectively)

328,914 288,985 Restricted cash and investments 136,882 138,540 Accrued interest and premiums 5,405 5,860 Unrealized gain on credit swaps, at fair value - 2,006 Debt issuance costs, net 3,706 4,072

Other assets (includes $8,504 and $11,559 at fair value as of September 30, 2011 and December 31, 2010, respectively)

  12,422     17,660   Total assets $ 594,628   $ 634,859     Liabilities and Equity Liabilities Accounts payable and accrued expenses $ 4,285 $ 8,701 Unrealized loss on credit swaps, at fair value 546,266 395,164 Payable for credit events 2,092 3,447 Long-term debt 191,511 215,828 Restructuring liabilities 36 3,729 Other liabilities   3,357     6,025   Total liabilities   747,547     632,894     Commitments and contingencies Equity (Deficit)

Common shares, $0.08 par value, 62,500,000 shares authorized, 35,334,749 and 38,078,790 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

2,825 3,046 Additional paid-in capital 262,621 275,453 Accumulated other comprehensive income 1,726 3,333 Retained earnings (deficit)   (510,237 )   (372,969 ) Total shareholders’ equity (deficit) of Primus Guaranty, Ltd (243,065 ) (91,137 ) Preferred securities of subsidiary   90,146     93,102   Total equity (deficit)   (152,919 )   1,965   Total liabilities and equity $ 594,628   $ 634,859    

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

  Three Months Ended   Nine Months Ended September 30, September 30, 2011   2010 2011   2010   Revenues Net credit swap revenue (loss) $ (283,404 ) $ 227,547 $ (136,297 ) $ 125,369 Interest income 2,436 3,674 7,616 9,914 Gain on retirement of long-term debt 2,061 752 4,821 8,185 Other income   153     2,513     771     2,645   Total revenues   (278,754 )   234,486     (123,089 )   146,113     Expenses Compensation and employee benefits 1,443 4,036 5,135 13,162 Professional and legal fees 706 1,742 2,202 5,405 Interest expense 1,445 1,760 4,558 5,366 Other   994     1,851     3,387     5,351   Total expenses   4,588     9,389     15,282     29,284  

Income (loss) from continuing operations before provision (283,342) (benefit) for income taxes

225,097 (138,371 ) 116,829 Provision (benefit) for income taxes   -     71     11     98   Income (loss) from continuing operations, net of tax (283,342 ) 225,026 (138,382 ) 116,731 Income (loss) from discontinued operations, net of tax   919     (19,622 )   3,457     (48,008 ) Net income (loss) (282,423 ) 205,404 (134,925 ) 68,723 Less: Distributions on preferred securities of subsidiary 682 732 2,343 2,444

Net loss from discontinued operations attributable to non-parent interests in CLOs

  -     (24,355 )   -     (60,876 ) Net income (loss) available to common shares $ (283,105 ) $ 229,027   $ (137,268 ) $ 127,155     Income (loss) per common share: Basic: Income (loss) from continuing operations $ (7.79 ) $ 5.90 $ (3.76 ) $ 2.97 Income (loss) from discontinued operations $ 0.03   $ 0.12   $ 0.09   $ 0.33   Net income (loss) available to common shares $ (7.76 ) $ 6.02   $ (3.67 ) $ 3.30   Diluted: Income (loss) from continuing operations $ (7.79 ) $ 5.60 $ (3.76 ) $ 2.80 Income (loss) from discontinued operations $ 0.03   $ 0.12   $ 0.09   $ 0.32   Net income (loss) available to common shares $ (7.76 ) $ 5.72   $ (3.67 ) $ 3.12     Weighted average common shares outstanding: Basic 36,470 38,049 37,411 38,546 Diluted 36,470 40,042 37,411 40,737   Primus Guaranty, Ltd. Regulation G and Other Disclosure Economic Results September 30, 2011 (Unaudited)   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.   Economic Results per GAAP Diluted Share   (in 000's except per share amounts)   Three Months Ended

September 30,

  Nine Months Ended

September 30,

2011   2010 2011   2010 GAAP Net income (loss) available to common shares $ (283,105 ) $ 229,027 $ (137,268 ) $ 127,155 Adjustments: Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial 293,298 (231,173 ) 153,108 (163,346 ) Amortization of realized gains from the early termination of credit swaps sold by Primus Financial 25 145 94 703 Provision for CDS on ABS credit events - - (1,398 ) (2,374 ) Reduction in provision for CDS on ABS credit events upon termination of credit swaps     -       -     9,841       1,819   Economic Results   $ 10,218     $ (2,001 ) $ 24,377     $ (36,043 )   Economic Results earnings (loss) per GAAP diluted share $ 0.28 $ (0.05 ) $ 0.65 $ (0.88 ) Economic Results weighted average common shares - GAAP diluted 36,470 40,042 37,411 40,737   Economic Results Book Value per Share   September 30, December 31, 2011 2010   GAAP Shareholders' equity (deficit) of Primus Guaranty, Ltd. $ (243,065 ) $ (91,137 ) Adjustments:   Accumulated other comprehensive (income) loss (1,726 ) (3,333 ) Unrealized fair value of credit swaps sold (gain) loss by Primus Financial 546,266 393,158 Realized gains from early termination of credit swaps sold by Primus Financial (33,574 ) (33,574 ) Amortized realized gains from the early termination of credit swaps sold by Primus Financial 33,537 33,443 Provision for CDS on ABS credit events (70,189 ) (68,791 ) Reduction in provision for CDS on ABS credit events upon termination of credit swaps     58,416       48,575   Economic Results Shareholders' Equity   $ 289,665     $ 278,341     Economic Results book value per share issued and outstanding $ 8.20 $ 7.31   GAAP book value per share issued and outstanding $ (6.88 ) $ (2.39 )   Common shares issued and outstanding 35,335 38,079   Primus Guaranty, Ltd. GAAP Net Credit Swap Revenue (Loss) September 30, 2011 (Unaudited)   GAAP Net Credit Swap Revenue (Loss)   (in 000's)   Three Months Ended

September 30,

  Nine Months Ended

September 30,

2011   2010 2011   2010 Net credit swap revenue (loss) components Credit swaps sold - single name (Primus Financial) Net premium income $ 6,241 $ 10,794 $ 20,498 $ 34,986 Realized gains - - - - Realized losses - (13,706 ) (652 ) (40,002 ) Change in unrealized gains/(losses) (24,704 ) 78,437 17,355 79,981 Credit swaps sold - tranches (Primus Financial) Net premium income 3,607 3,303 10,662 10,689 Realized gains - - - - Realized losses - - (4,032 ) (35,000 ) Change in unrealized gains/(losses) (268,978 ) 147,643 (180,159 ) 72,350 Credit swaps undertaken to offset credit risk (Primus Financial) Net premium income (expense) - (42 ) - (87 ) Net realized gains (losses) - (1,017 ) 47 (3,955 ) Change in unrealized gains/(losses) - 1,533 (59 ) 4,470 Credit swaps sold - ABS (Primus Financial) Net premium income 46 79 129 212 Realized gains - - - - Realized losses - (2,778 ) (9,841 ) (4,597 ) Change in unrealized gains/(losses) 384 3,560 9,755 6,545 Net credit swaps (PARC fund)   -     (259 )   -     (223 ) Net credit swap revenue (loss) $ (283,404 ) $ 227,547   $ (136,297 ) $ 125,369