PRS Prudential Financial Inc

Primus Guaranty, Ltd. (“Primus Guaranty” or “the Company”) (NYSE:PRS) today announced its financial results for the first quarter ended March 31, 2011.

• GAAP net income available to common shares for the first quarter 2011 was $84.7 million, or $2.21 per diluted share, compared with GAAP net income available to common shares of $86.5 million, or $2.15 per diluted share, for the first quarter 2010. GAAP net income available to common shares for the first quarter 2011 was driven by a net unrealized mark-to-market gain of $82.7 million on Primus Financial Products, LLC (“Primus Financial”)’s consolidated credit swap portfolio.
• Economic Results for the first quarter 2011 were $8.7 million, or $0.23 per diluted share, compared with an Economic Results loss of $40.9 million, or $1.01 per diluted share, for the first quarter 2010. Economic Results for the first quarter 2011 was primarily a result of premium revenue of $11.2 million, gains on retirement of debt of $2.8 million, offset by net operating costs of $4.3 million.
• Economic Results book value per common share was $7.53 at March 31, 2011, compared with Economic Results book value per common share of $7.31 at December 31, 2010.
• At March 31, 2011, the notional principal of Primus Financial’s consolidated credit swap portfolio totaled $9.6 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 May 12, 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)

  March 31, December 31, 2011 2010   Assets Cash and cash equivalents $ 63,021 $ 177,736 Investments (includes $381,585 and $288,815 at fair value as of March 31, 2011 and December 31, 2010, respectively) 381,756 288,985 Restricted cash and investments 140,228 138,540 Accrued interest and premiums 6,935 5,860 Unrealized gain on credit swaps, at fair value 3,259 2,006 Debt issuance costs, net 3,856 4,072 Other assets (includes $10,947 and 11,559 at fair value as of March 31, 2011 and December 31, 2010, respectively)   19,141     17,660   Total assets $ 618,196   $ 634,859     Liabilities and Equity (deficit) Liabilities Accounts payable and accrued expenses $ 4,498 $ 8,701 Unrealized loss on credit swaps, at fair value 313,679 395,164 Payable for credit events 2,963 3,447 Long-term debt 203,091 215,828 Restructuring liabilities 506 3,729 Other liabilities   7,670     6,025   Total liabilities   532,407     632,894       Equity (deficit) Common shares, $0.08 par value, 62,500,000 shares authorized, 37,996,854 and 38,078,790 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively 3,040 3,046 Additional paid-in capital 274,687 275,453 Accumulated other comprehensive income 3,229 3,333 Retained earnings (deficit)   (288,269 )   (372,969 ) Total shareholders’ equity (deficit) of Primus Guaranty, Ltd (7,313 ) (91,137 ) Preferred securities of subsidiary   93,102     93,102   Total equity (deficit)   85,789     1,965   Total liabilities and equity (deficit) $ 618,196   $ 634,859       Primus Guaranty, Ltd. Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

  Three Months Ended March 31, 2011     2010 Revenues Net credit swap revenue $ 86,098 $ 87,530 Interest income 2,611 2,699 Gain on retirement of long-term debt 2,760 4,757 Other income   297     183 Total revenues   91,766     95,169   Expenses Compensation and employee benefits 2,122 4,580 Professional and legal fees 822 1,485 Interest expense 1,567 1,869 Other   1,316     1,723 Total expenses   5,827     9,657 Income from continuing operations before provision (benefit) for income taxes 85,939 85,512 Provision (benefit) for income taxes   10     140 Income from continuing operations, net of tax 85,929 85,372 Income (loss) from discontinued operations, net of tax   (270 )   91,551 Net income 85,659 176,923 Less: Distributions on preferred securities of subsidiary 959 988 Net income from discontinued operations attributable to non-parent interests in CLOs   -     89,413 Net income available to common shares $ 84,700   $ 86,522   Income per common share: Basic: Income from continuing operations $ 2.23 $ 2.18 Income (loss) from discontinued operations $ (0.01 ) $ 0.06 Net income available to common shares $ 2.22   $ 2.24 Diluted: Income from continuing operations $ 2.21 $ 2.09 Income (loss) from discontinued operations $ (0.00 ) $ 0.06 Net income available to common shares $ 2.21   $ 2.15  

Weighted average common shares outstanding:

Basic 38,124 38,686 Diluted 38,376 40,280  

Primus Guaranty, Ltd.Regulation G and Other DisclosureEconomic ResultsMarch 31, 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 March 31, 2011 2010 GAAP Net income (loss) available to common shares $ 84,700 $ 86,522 Adjustments: Change in unrealized fair value of credit swaps sold (gain) loss by Primus Financial (82,738 ) (127,136 ) Amortization of realized gains from the early termination of credit swaps sold by Primus Financial 39 294 Provision for CDS on ABS credit events (1,143 ) (2,374 ) Reduction in provision for CDS on ABS credit events upon termination of credit swaps     7,858         1,819   Economic Results   $ 8,716       $ (40,875 )   Economic Results earnings (loss) per GAAP diluted share $ 0.23 $ (1.01 ) Economic Results weighted average common shares - GAAP diluted 38,376 40,280             Economic Results Book Value per Share             March 31, December 31, 2011 2010   GAAP Shareholders' equity (deficit) of Primus Guaranty, Ltd. $ (7,313 ) $ (91,137 ) Adjustments:   Accumulated other comprehensive (income) loss (3,229 ) (3,333 ) Unrealized fair value of credit swaps sold (gain) loss by Primus Financial 310,420 393,158 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 33,482 33,443 Provision for CDS on ABS credit events (69,934 ) (68,791 ) Reduction in provision for CDS on ABS credit events upon termination of credit swaps     56,433       48,575   Economic Results Shareholders' Equity   $ 286,285     $ 278,341     Economic Results book value per share issued and outstanding $ 7.53 $ 7.31   GAAP book value per share issued and outstanding $ (0.19 ) $ (2.39 )   Common shares issued and outstanding 37,997 38,079       Primus Guaranty, Ltd. GAAP Net Credit Swap Revenue March 31, 2011 (Unaudited)             GAAP Net Credit Swap Revenue           (in 000's) Three Months Ended March 31, 2011 2010 Net credit swap revenue components Credit swaps sold - single name (Primus Financial) Net premium income $ 7,580 $ 12,566 Realized gains - - Realized losses - (19,223 ) Change in unrealized gains/(losses) 17,555 36,050 Credit swaps sold - tranches (Primus Financial) Net premium income 3,529 3,803 Realized gains - Realized losses - (35,000 ) Change in unrealized gains/(losses) 58,118 89,398 Credit swaps undertaken to offset credit risk (Primus Financial) Net premium income (expense) - - Net realized gains (losses) 47 - Change in unrealized gains/(losses) (59 ) (299 )

Credit swaps sold - ABS (Primus Financial)

Net premium income 62 67 Realized gains - - Realized losses (7,858 ) (1,819 ) Change in unrealized gains/(losses)   7,124     1,987   Net credit swap revenue $ 86,098   $ 87,530