##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission File Number: 001-32307
 
 Primus Guaranty, Ltd.
  Bermuda
(State or other jurisdiction of 
incorporation or organization)
    
    98-0402357
(I.R.S. Employer Identification No.)
 Clarendon House
2 Church Street
Hamilton HM 11, Bermuda
 441-296-0519
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



Primus Guaranty, Ltd.
 Form 10-Q
   
 INDEX
 Part I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Statements of Financial Condition as of
September 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) for the
three and nine months ended September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Equity (Deficit) for the nine months
ended September 30, 2009 (Unaudited) and year ended December 31, 2008
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34Cautionary Statement Regarding Forward Looking Information
    
    
    57Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    58Item 4. Controls and Procedures
    
    
    59Part II. Other InformationItem 1. Legal Proceedings
    
    
    60Item 1A. Risk Factors
    
    
    60Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    60Item 6. Exhibits
    
    
    60Signatures
    
    
    61Exhibit 12Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



Part I. Financial Information
 
 Item 1.
    
    Financial Statements
 Primus Guaranty, Ltd.
 
 Condensed Consolidated Statements of Financial Condition  (in thousands except share amounts)
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)AssetsCash and cash equivalents
    
    $
    568,684
    
    
    $
    280,912Investments
    
    
    178,779
    
    
    
    486,870Accrued interest receivable
    
    
    1,763
    
    
    
    3,704Accrued premiums and receivables on credit swaps
    
    
    2,383
    
    
    
    2,764Unrealized gain on credit swaps, at fair value
    
    
    670
    
    
    
    Fixed assets and software costs, net
    
    
    2,525
    
    
    
    3,308Debt issuance costs, net
    
    
    4,896
    
    
    
    6,153Goodwill
    
    
    3,922
    
    
    
    Intangible assets, net
    
    
    4,290
    
    
    
    Other assets
    
    
    6,047
    
    
    
    10,520Total assets
    
    $
    773,959
    
    
    $
    794,231Liabilities and Equity (deficit)LiabilitiesAccounts payable and accrued expenses
    
    $
    2,592
    
    
    $
    1,737Accrued compensation
    
    
    4,374
    
    
    
    1,768Unrealized loss on credit swaps, at fair value
    
    
    1,027,166
    
    
    
    2,173,461Payable to broker for securities transactions
    
    
    20,433
    
    
    
    Payable for credit events
    
    
    840
    
    
    
    3,186Long-term debt
    
    
    252,910
    
    
    
    317,535Other liabilities
    
    
    7,532
    
    
    
    979Total liabilities
    
    
    1,315,847
    
    
    
    2,498,666Commitments and contingenciesEquity (deficit)Common shares, $0.08 par value, 62,500,000
shares authorized, 39,737,639 and 40,781,538
shares issued and outstanding at September 30,
2009 and December 31, 2008
    
    
    3,179
    
    
    
    3,263Additional paid-in capital
    
    
    284,003
    
    
    
    281,596Accumulated other comprehensive income (loss)
    
    
    1,272
    
    
    
    908Retained earnings (deficit)
    
    
    (923,444
    )
    
    
    (2,088,723
    )Total shareholders equity (deficit) of
Primus Guaranty, Ltd.
    
    
    (634,990
    )
    
    
    (1,802,956
    )Preferred securities of subsidiary
    
    
    93,102
    
    
    
    98,521Total equity (deficit)
    
    
    (541,888
    )
    
    
    (1,704,435
    )Total liabilities and equity (deficit)
    
    $
    773,959
    
    
    $
    794,231
 See accompanying notes.
  3




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Primus Guaranty, Ltd.
 
 Condensed Consolidated Statements of Operations  (in thousands except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)
    
    
    (unaudited)RevenuesNet credit swap revenue (loss)
    
    $
    471,835
    
    
    $
    (387,683
    )
    
    $
    1,154,599
    
    
    $
    (780,308
    )Asset management and advisory fees
    
    
    1,270
    
    
    
    1,096
    
    
    
    2,076
    
    
    
    3,276Interest income
    
    
    1,218
    
    
    
    6,212
    
    
    
    4,716
    
    
    
    21,725Gain on retirement of long-term debt
    
    
    643
    
    
    
    
    
    
    
    39,591
    
    
    
    Impairment losses on available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    (761
    )
    
    
    Other income (loss)
    
    
    548
    
    
    
    (140
    )
    
    
    3,022
    
    
    
    (267
    )Total revenues (losses)
    
    
    475,514
    
    
    
    (380,515
    )
    
    
    1,203,243
    
    
    
    (755,574
    )ExpensesCompensation and employee benefits
    
    
    6,418
    
    
    
    1,739
    
    
    
    15,699
    
    
    
    13,894Professional and legal fees
    
    
    2,253
    
    
    
    796
    
    
    
    5,631
    
    
    
    3,100Depreciation and amortization
    
    
    344
    
    
    
    336
    
    
    
    853
    
    
    
    999Technology and data
    
    
    847
    
    
    
    854
    
    
    
    2,397
    
    
    
    2,865Interest expense
    
    
    2,026
    
    
    
    3,974
    
    
    
    7,094
    
    
    
    12,838Other
    
    
    1,352
    
    
    
    596
    
    
    
    3,398
    
    
    
    3,219Total expenses
    
    
    13,240
    
    
    
    8,295
    
    
    
    35,072
    
    
    
    36,915Income (loss) before provision for income taxes
    
    
    462,274
    
    
    
    (388,810
    )
    
    
    1,168,171
    
    
    
    (792,489
    )Provision for income taxes
    
    
    5
    
    
    
    12
    
    
    
    152
    
    
    
    61Net income (loss)
    
    
    462,269
    
    
    
    (388,822
    )
    
    
    1,168,019
    
    
    
    (792,550
    )Distributions on preferred securities of subsidiary
    
    
    726
    
    
    
    1,397
    
    
    
    2,740
    
    
    
    5,144Net income (loss) available to common shares
    
    $
    461,543
    
    
    $
    (390,219
    )
    
    $
    1,165,279
    
    
    $
    (797,694
    )Income (loss) per common share:Basic
    
    $
    11.54
    
    
    $
    (8.63
    )
    
    $
    28.82
    
    
    $
    (17.65
    )Diluted
    
    $
    11.14
    
    
    $
    (8.63
    )
    
    $
    28.26
    
    
    $
    (17.65
    )Weighted average common shares outstanding:Basic
    
    
    39,999
    
    
    
    45,230
    
    
    
    40,430
    
    
    
    45,187Diluted
    
    
    41,414
    
    
    
    45,230
    
    
    
    41,238
    
    
    
    45,187
 See accompanying notes.
  4




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Primus Guaranty, Ltd.
 
 Condensed Consolidated Statements of Cash Flows  (in thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008(unaudited)Cash flows from operating activitiesNet income (loss) available to common shares
    
    $
    1,165,279
    
    
    $
    (797,694
    )Distributions on preferred securities of subsidiary
    
    
    2,740
    
    
    
    5,144Net income (loss)
    
    
    1,168,019
    
    
    
    (792,550
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Non-cash items included in net income (loss):Depreciation and amortization
    
    
    853
    
    
    
    999Share-based compensation
    
    
    3,275
    
    
    
    3,522Net unrealized (gains) losses on credit swaps
    
    
    (1,146,965
    )
    
    
    769,675Net amortization of premium and discount on
securities
    
    
    (562
    )
    
    
    (1,552
    )Gain on retirement of long-term debt
    
    
    (39,591
    )
    
    
    Impairment losses on available-for-sale investments
    
    
    761
    
    
    
    Amortization of debt issuance costs
    
    
    192
    
    
    
    234Loss on disposal of assets
    
    
    286
    
    
    
    Increase (decrease) in cash resulting from changes in:Accrued interest receivable
    
    
    1,941
    
    
    
    3,664Accrued premiums and receivables on credit swaps
    
    
    381
    
    
    
    1,575Other assets
    
    
    601
    
    
    
    930Trading account assets
    
    
    3,715
    
    
    
    Accounts payable and accrued expenses
    
    
    (572
    )
    
    
    (434
    )Accrued compensation
    
    
    2,606
    
    
    
    (3,028
    )Payable for credit events
    
    
    (2,346
    )
    
    
    84,491Accrued premiums and payables on credit and
other swaps
    
    
    
    
    
    
    (1,770
    )Restructuring liabilities
    
    
    
    
    
    
    (1,709
    )Other liabilities
    
    
    322
    
    
    
    (471
    )Net cash provided by (used in) operating activities
    
    
    (7,084
    )
    
    
    63,576Cash flows from investing activitiesBusiness acquisition
    
    
    (3,208
    )
    
    
    Fixed asset purchases and capitalized software costs
    
    
    (97
    )
    
    
    (702
    )Payments received from CLO investments
    
    
    94
    
    
    
    2,798Purchases of available-for-sale investments
    
    
    (154,559
    )
    
    
    (1,424,539
    )Maturities and sales of available-for-sale investments
    
    
    479,627
    
    
    
    1,420,051Net cash provided by (used in) investing activities
    
    
    321,857
    
    
    
    (2,392
    )Cash flows from financing activitiesRetirement of long-term debt
    
    
    (19,052
    )
    
    
    Purchase and retirement of common shares
    
    
    (5,463
    )
    
    
    (201
    )Purchase of preferred securities of subsidiary
    
    
    (908
    )
    
    
    Net preferred distributions of subsidiary
    
    
    (2,740
    )
    
    
    (5,144
    )Net cash used in financing activities
    
    
    (28,163
    )
    
    
    (5,345
    )Net effect of exchange rate changes on cash
    
    
    168
    
    
    
    (169
    )Net increase in cash
    
    
    286,778
    
    
    
    55,670Cash and cash equivalents at beginning of period
    
    
    280,912
    
    
    
    242,665Cash and cash equivalents at end of period
    
    $
    567,690
    
    
    $
    298,335Supplemental disclosuresCash paid for interest
    
    $
    8,292
    
    
    $
    13,038Cash paid for taxes
    
    $
    128
    
    
    $
    38
 See accompanying notes.
  5




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Primus Guaranty, Ltd.
 
 Condensed Consolidated Statements of Equity (Deficit) (in thousands)
 Nine Months Ended
    
    
    Year EndedSeptember 30, 2009
    
    
    December 31, 2008(unaudited)Common sharesBalance at beginning of period
    
    $
    3,263
    
    
    $
    3,603Shares purchased and retired
    
    
    (158
    )
    
    
    (359
    )Shares vested under employee compensation plans
    
    
    74
    
    
    
    19Balance at end of period
    
    
    3,179
    
    
    
    3,263Additional paid-in capitalBalance at beginning of period
    
    
    281,596
    
    
    
    280,224Common shares purchased and retired
    
    
    (4,810
    )
    
    
    (3,220
    )Shares vested under employee compensation plans
    
    
    2,706
    
    
    
    4,592Preferred shares purchased by subsidiary
    
    
    4,511
    
    
    
    Balance at end of period
    
    
    284,003
    
    
    
    281,596Accumulated other comprehensive income (loss)Balance at beginning of period
    
    
    908
    
    
    
    (4,712
    )Foreign currency translation adjustments
    
    
    168
    
    
    
    (447
    )Change in unrealized holding gains (losses) on
available-for-sale securities
    
    
    196
    
    
    
    6,067Balance at end of period
    
    
    1,272
    
    
    
    908Retained earnings (deficit)Balance at beginning of period
    
    
    (2,088,723
    )
    
    
    (372,577
    )Net income (loss)
    
    
    1,168,019
    
    
    
    (1,709,504
    )Distributions on preferred securities of subsidiary
    
    
    (2,740
    )
    
    
    (6,642
    )Balance at end of period
    
    
    (923,444
    )
    
    
    (2,088,723
    )Total shareholders equity (deficit) of Primus
Guaranty, Ltd.
    
    
    (634,990
    )
    
    
    (1,802,956
    )Preferred securities of subsidiaryBalance at beginning of period
    
    
    98,521
    
    
    
    98,521Net purchase of preferred shares
    
    
    (5,419
    )
    
    
    Balance at end of period
    
    
    93,102
    
    
    
    98,521Total equity (deficit) at end of period
    
    $
    (541,888
    )
    
    $
    (1,704,435
    )
 See accompanying notes.
  6




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Primus Guaranty, Ltd.
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. Organization and Basis of Presentation
      7




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
       2. Accounting Pronouncements
 Generally Accepted Accounting Principles
  8




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Business Combinations Business Combinations
 Consolidation
 Derivatives and Hedging
  .
  9




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
    Subsequent Events
  Measuring Liabilities at Fair Value Fair Value Measurements and
Disclosures
  10




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 3. Investments
   September 30, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale:Corporate debt securities
    
    $
    140,619
    
    
    $
    1,693
    
    
    $
    (327
    )
    
    $
    141,985Collateralized loan obligations
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    204Total available-for-sale
    
    
    140,823
    
    
    
    1,693
    
    
    
    (327
    )
    
    
    142,189Held-to-maturity:Corporate notes
    
    
    36,196
    
    
    
    
    
    
    
    
    
    
    
    36,196Certificate of deposit
    
    
    169
    
    
    
    
    
    
    
    
    
    
    
    169Total held-to-maturity
    
    
    36,365
    
    
    
    
    
    
    
    
    
    
    
    36,365Trading:Corporate debt securities
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    225Total trading
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    225Total investments
    
    $
    177,413
    
    
    $
    1,693
    
    
    $
    (327
    )
    
    $
    178,779
 December 31, 2008Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale:U.S. government agency obligations
    
    $
    458,909
    
    
    $
    2,016
    
    
    $
    (39
    )
    
    $
    460,886Collateralized loan obligations
    
    
    791
    
    
    
    
    
    
    
    
    
    
    
    791Corporate debt securities
    
    
    22,076
    
    
    
    84
    
    
    
    (912
    )
    
    
    21,248ABS
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Total available-for-sale
    
    
    481,781
    
    
    
    2,100
    
    
    
    (951
    )
    
    
    482,930Trading:Corporate debt securities
    
    
    3,940
    
    
    
    
    
    
    
    
    
    
    
    3,940Total trading
    
    
    3,940
    
    
    
    
    
    
    
    
    
    
    
    3,940Total investments
    
    $
    485,721
    
    
    $
    2,100
    
    
    $
    (951
    )
    
    $
    486,870
  11




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  September 30, 2009Securities with Unrealized LossesLess than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesCorporate debt securities
    
    $
    35,861
    
    
    $
    (95
    )
    
    $
    2,619
    
    
    $
    (232
    )
    
    $
    38,480
    
    
    $
    (327
    )Total
    
    $
    35,861
    
    
    $
    (95
    )
    
    $
    2,619
    
    
    $
    (232
    )
    
    $
    38,480
    
    
    $
    (327
    )
 December 31, 2008Securities with Unrealized LossesLess than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. government agency obligations
    
    $
    24,968
    
    
    $
    (39
    )
    
    $
    
    
    
    $
    
    
    
    $
    24,968
    
    
    $
    (39
    )Corporate debt securities
    
    
    17,364
    
    
    
    (912
    )
    
    
    
    
    
    
    
    
    
    
    17,364
    
    
    
    (912
    )Total
    
    $
    42,332
    
    
    $
    (951
    )
    
    $
    
    
    
    $
    
    
    
    $
    42,332
    
    
    $
    (951
    )
    12




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 4. Net Credit Swap Revenue (Loss) and Portfolio
 Overview
      13




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
      14




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Consolidated Net Credit Swap Revenue (Loss) and Credit Swap Portfolio Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net premium income
    
    $
    21,885
    
    
    $
    24,378
    
    
    $
    66,588
    
    
    $
    78,928Net realized losses
    
    
    (21,500
    )
    
    
    (84,415
    )
    
    
    (58,953
    )
    
    
    (89,466
    )Net change in unrealized gains (losses)
    
    
    471,450
    
    
    
    (327,646
    )
    
    
    1,146,964
    
    
    
    (769,770
    )Net credit swap revenue (loss)
    
    $
    471,835
    
    
    $
    (387,683
    )
    
    $
    1,154,599
    
    
    $
    (780,308
    )
  September 30,
    
    
    December 31,2009
    
    
    2008Gross Notional Amounts:Credit swaps sold-single name
    
    $
    14,589,676
    
    
    $
    17,477,946Credit swaps sold-tranche
    
    
    5,000,000
    
    
    
    5,000,000CDS on ABS
    
    
    38,682
    
    
    
    67,654Credit swaps purchased-single name
    
    
    (11,740
    )
    
    
    (11,740
    )Fair Value:Asset
    
    
    670
    
    
    
    Liability
    
    
    1,027,166
    
    
    
    2,173,461
   15




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Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  September 30, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairMoodys Rating Category
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueBy Single Name Reference
Entity/TrancheCredit Swaps Sold-Single Name:Aaa
    
    $
    190,520
    
    
    $
    (940
    )
    
    $
    525,812
    
    
    $
    (19,442
    )Aa
    
    
    2,129,760
    
    
    
    (20,019
    )
    
    
    2,815,912
    
    
    
    (83,984
    )A
    
    
    5,075,800
    
    
    
    (23,084
    )
    
    
    5,825,968
    
    
    
    (162,262
    )Baa
    
    
    5,596,032
    
    
    
    (40,968
    )
    
    
    6,629,514
    
    
    
    (321,765
    )Ba
    
    
    910,244
    
    
    
    (32,764
    )
    
    
    1,168,506
    
    
    
    (128,516
    )B
    
    
    307,160
    
    
    
    (16,416
    )
    
    
    253,422
    
    
    
    (30,355
    )Caa
    
    
    70,000
    
    
    
    (1,680
    )
    
    
    112,812
    
    
    
    (47,423
    )Ca
    
    
    139,000
    
    
    
    (60,785
    )
    
    
    105,000
    
    
    
    (48,506
    )C
    
    
    160,160
    
    
    
    (115,811
    )
    
    
    35,000
    
    
    
    (3,189
    )D
    
    
    11,000
    
    
    
    (5,725
    )
    
    
    6,000
    
    
    
    (782
    )Total
    
    $
    14,589,676
    
    
    $
    (318,192
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:Aaa
    
    $
    1,200,000
    
    
    $
    (36,952
    )
    
    $
    2,700,000
    
    
    $
    (495,997
    )Aa
    
    
    1,700,000
    
    
    
    (197,675
    )
    
    
    1,350,000
    
    
    
    (386,705
    )A
    
    
    800,000
    
    
    
    (111,279
    )
    
    
    200,000
    
    
    
    (73,091
    )Baa
    
    
    550,000
    
    
    
    (97,972
    )
    
    
    600,000
    
    
    
    (231,999
    )Ba
    
    
    300,000
    
    
    
    (60,435
    )
    
    
    
    
    
    
    B
    
    
    300,000
    
    
    
    (89,504
    )
    
    
    150,000
    
    
    
    (88,725
    )Ca
    
    
    150,000
    
    
    
    (86,251
    )
    
    
    
    
    
    
    Total
    
    $
    5,000,000
    
    
    $
    (680,068
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:A
    
    $
    
    
    
    $
    
    
    
    $
    5,000
    
    
    $
    (2,530
    )Baa
    
    
    3,682
    
    
    
    (2,572
    )
    
    
    15,000
    
    
    
    (11,089
    )Ba
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    (3,607
    )C
    
    
    35,000
    
    
    
    (29,550
    )
    
    
    42,654
    
    
    
    (36,193
    )Total
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:A
    
    $
    (4,120
    )
    
    $
    88
    
    
    $
    (4,120
    )
    
    $
    536Baa
    
    
    
    
    
    
    
    
    
    
    (3,580
    )
    
    
    474Ba
    
    
    
    
    
    
    
    
    
    
    (4,040
    )
    
    
    1,689Ca
    
    
    (7,620
    )
    
    
    3,798
    
    
    
    
    
    
    
    Total
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699
  16




---



##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 September 30, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairMoodys Rating Category
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueBy Counterparty Buyer / (Seller)Credit Swaps Sold-Single Name:Aaa
    
    $
    10,000
    
    
    $
    (131
    )
    
    $
    2,411,228
    
    
    $
    (94,793
    )Aa
    
    
    10,789,508
    
    
    
    (231,682
    )
    
    
    11,930,958
    
    
    
    (573,250
    )A
    
    
    2,430,768
    
    
    
    (42,411
    )
    
    
    1,746,917
    
    
    
    (100,189
    )Baa
    
    
    80,000
    
    
    
    (97
    )
    
    
    
    
    
    
    Non rated
    
    
    1,279,400
    
    
    
    (43,871
    )
    
    
    1,388,843
    
    
    
    (77,992
    )Total
    
    $
    14,589,676
    
    
    $
    (318,192
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:Aa
    
    $
    4,550,000
    
    
    $
    (601,053
    )
    
    $
    4,550,000
    
    
    $
    (1,132,176
    )A
    
    
    450,000
    
    
    
    (79,015
    )
    
    
    450,000
    
    
    
    (144,341
    )Total
    
    $
    5,000,000
    
    
    $
    (680,068
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:Aa
    
    $
    5,000
    
    
    $
    (4,179
    )
    
    $
    43,494
    
    
    $
    (32,519
    )A
    
    
    28,682
    
    
    
    (23,546
    )
    
    
    19,160
    
    
    
    (17,093
    )Non rated
    
    
    5,000
    
    
    
    (4,397
    )
    
    
    5,000
    
    
    
    (3,807
    )Total
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:Aa
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699
  17




---



##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 September 30, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairS&P Rating Category
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueBy Single Name Reference
Entity/TrancheCredit Swaps Sold-Single Name:AAA
    
    $
    395,520
    
    
    $
    (9,205
    )
    
    $
    555,812
    
    
    $
    (19,594
    )AA
    
    
    1,611,400
    
    
    
    (9,750
    )
    
    
    2,276,042
    
    
    
    (78,128
    )A
    
    
    6,083,600
    
    
    
    (30,509
    )
    
    
    6,984,696
    
    
    
    (200,543
    )BBB
    
    
    5,087,032
    
    
    
    (36,149
    )
    
    
    6,427,687
    
    
    
    (336,933
    )BB
    
    
    724,444
    
    
    
    (31,343
    )
    
    
    722,933
    
    
    
    (71,601
    )B
    
    
    253,560
    
    
    
    (12,095
    )
    
    
    289,246
    
    
    
    (71,219
    )CCC
    
    
    108,960
    
    
    
    (5,950
    )
    
    
    180,530
    
    
    
    (64,235
    )CC
    
    
    290,160
    
    
    
    (170,750
    )
    
    
    
    
    
    
    C
    
    
    24,000
    
    
    
    (6,716
    )
    
    
    35,000
    
    
    
    (3,189
    )D
    
    
    11,000
    
    
    
    (5,725
    )
    
    
    6,000
    
    
    
    (782
    )Total
    
    $
    14,589,676
    
    
    $
    (318,192
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:AAA
    
    $
    1,300,000
    
    
    $
    (47,105
    )
    
    $
    3,600,000
    
    
    $
    (738,361
    )AA
    
    
    1,600,000
    
    
    
    (187,521
    )
    
    
    450,000
    
    
    
    (144,341
    )A
    
    
    400,000
    
    
    
    (46,477
    )
    
    
    100,000
    
    
    
    (37,107
    )BBB
    
    
    950,000
    
    
    
    (162,775
    )
    
    
    500,000
    
    
    
    (187,384
    )BB
    
    
    200,000
    
    
    
    (35,700
    )
    
    
    200,000
    
    
    
    (80,599
    )B
    
    
    200,000
    
    
    
    (56,447
    )
    
    
    100,000
    
    
    
    (60,460
    )CCC
    
    
    200,000
    
    
    
    (57,792
    )
    
    
    50,000
    
    
    
    (28,265
    )C
    
    
    150,000
    
    
    
    (86,251
    )
    
    
    
    
    
    
    Total
    
    $
    5,000,000
    
    
    $
    (680,068
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:BBB
    
    $
    8,682
    
    
    $
    (6,969
    )
    
    $
    15,000
    
    
    $
    (10,828
    )BB
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    (6,727
    )B
    
    
    5,000
    
    
    
    (4,179
    )
    
    
    10,000
    
    
    
    (6,597
    )CCC
    
    
    15,000
    
    
    
    (12,034
    )
    
    
    10,000
    
    
    
    (7,747
    )CC
    
    
    10,000
    
    
    
    (8,940
    )
    
    
    22,654
    
    
    
    (21,520
    )Total
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:A
    
    $
    (4,120
    )
    
    $
    88
    
    
    $
    (4,120
    )
    
    $
    536BBB
    
    
    
    
    
    
    
    
    
    
    (7,620
    )
    
    
    2,163CC
    
    
    (4,040
    )
    
    
    2,437
    
    
    
    
    
    
    
    C
    
    
    (3,580
    )
    
    
    1,361
    
    
    
    
    
    
    
    Total
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699
  18




---



##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 September 30, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairS&P Rating Category
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueBy Counterparty Buyer / (Seller)Credit Swaps Sold-Single Name:AA
    
    $
    3,660,040
    
    
    $
    (57,998
    )
    
    $
    7,620,037
    
    
    $
    (350,248
    )A
    
    
    9,650,236
    
    
    
    (216,323
    )
    
    
    8,469,066
    
    
    
    (417,984
    )Non rated
    
    
    1,279,400
    
    
    
    (43,871
    )
    
    
    1,388,843
    
    
    
    (77,992
    )Total
    
    $
    14,589,676
    
    
    $
    (318,192
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:AA
    
    $
    2,750,000
    
    
    $
    (323,961
    )
    
    $
    2,850,000
    
    
    $
    (640,545
    )A
    
    
    1,800,000
    
    
    
    (277,092
    )
    
    
    2,150,000
    
    
    
    (635,972
    )BBB
    
    
    450,000
    
    
    
    (79,015
    )
    
    
    
    
    
    
    Total
    
    $
    5,000,000
    
    
    $
    (680,068
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:A
    
    $
    33,682
    
    
    $
    (27,725
    )
    
    $
    62,654
    
    
    $
    (49,612
    )Non rated
    
    
    5,000
    
    
    
    (4,397
    )
    
    
    5,000
    
    
    
    (3,807
    )Total
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:A
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699
  19




---



##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  September 30, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairCountry of Domicile
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueCredit Swaps Sold-Single NameBy Reference Entity:North America
    
    $
    7,472,260
    
    
    $
    (255,324
    )
    
    $
    9,135,739
    
    
    $
    (481,009
    )Europe
    
    
    6,426,416
    
    
    
    (55,808
    )
    
    
    7,456,207
    
    
    
    (314,651
    )Asia-Pacific
    
    
    522,000
    
    
    
    (6,156
    )
    
    
    707,000
    
    
    
    (38,839
    )Others
    
    
    169,000
    
    
    
    (904
    )
    
    
    179,000
    
    
    
    (11,725
    )Total
    
    $
    14,589,676
    
    
    $
    (318,192
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )By Counterparty:North America
    
    $
    6,791,356
    
    
    $
    (157,988
    )
    
    $
    8,872,732
    
    
    $
    (439,704
    )Europe
    
    
    7,681,320
    
    
    
    (158,642
    )
    
    
    8,463,214
    
    
    
    (401,245
    )Asia-Pacific
    
    
    117,000
    
    
    
    (1,562
    )
    
    
    132,000
    
    
    
    (5,203
    )Others
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    (72
    )Total
    
    $
    14,589,676
    
    
    $
    (318,192
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold -TrancheBy Counterparty:North America
    
    $
    600,000
    
    
    $
    (67,526
    )
    
    $
    600,000
    
    
    $
    (143,205
    )Europe
    
    
    4,400,000
    
    
    
    (612,542
    )
    
    
    4,400,000
    
    
    
    (1,133,312
    )Total
    
    $
    5,000,000
    
    
    $
    (680,068
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABSBy Reference Entity:North America
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Total
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )By Counterparty:North America
    
    $
    28,682
    
    
    $
    (24,175
    )
    
    $
    38,494
    
    
    $
    (27,695
    )Europe
    
    
    10,000
    
    
    
    (7,947
    )
    
    
    29,160
    
    
    
    (25,724
    )Total
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single NameBy Reference Entity:North America
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699By Counterparty:Europe
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699
  20




---



##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  September 30, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueCredit Swaps Sold-Single NameYear of Maturity2009
    
    $
    793,452
    
    
    $
    (1,580
    )
    
    $
    2,628,795
    
    
    $
    (43,412
    )2010
    
    
    5,572,540
    
    
    
    (70,819
    )
    
    
    5,815,475
    
    
    
    (231,783
    )2011
    
    
    2,589,820
    
    
    
    (114,666
    )
    
    
    2770,195
    
    
    
    (187,662
    )2012
    
    
    4,591,504
    
    
    
    (127,809
    )
    
    
    5,106,916
    
    
    
    (325,565
    )2013
    
    
    1,042,360
    
    
    
    (3,318
    )
    
    
    1,156,565
    
    
    
    (57,802
    )Total
    
    $
    14,589,676
    
    
    $
    (318,192
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-TrancheYear of Maturity2012
    
    $
    1,000,000
    
    
    $
    (20,425
    )
    
    $
    1,000,000
    
    
    $
    (70,593
    )2013
    
    
    350,000
    
    
    
    (127,343
    )
    
    
    350,000
    
    
    
    (167,083
    )2014
    
    
    3,650,000
    
    
    
    (532,300
    )
    
    
    3,650,000
    
    
    
    (1,038,841
    )Total
    
    $
    5,000,000
    
    
    $
    (680,068
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABSYear of Maturity2010
    
    $
    20,000
    
    
    $
    (17,104
    )
    
    $
    10,000
    
    
    $
    (6,597
    )2011
    
    
    8,682
    
    
    
    (6,751
    )
    
    
    5,000
    
    
    
    (4,491
    )2012
    
    
    10,000
    
    
    
    (8,267
    )
    
    
    14,160
    
    
    
    (10,742
    )2013
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    (12,002
    )2014
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    (11,554
    )2016
    
    
    
    
    
    
    
    
    
    
    8,494
    
    
    
    (8,033
    )Total
    
    $
    38,682
    
    
    $
    (32,122
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single
NameYear of Maturity2014
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    3,886
    
    
    $
    (11,740
    )
    
    $
    2,699
  21




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 5. Financial Instruments and Fair Value Disclosures
 Fair Value Measurements and Disclosures Fair Value Measurements and Disclosures
   
    
    Level 1  Valuations based on unadjusted quoted prices in active markets for identical
assets of liabilities.
  
    
    Level 2  Valuations based on quoted prices in markets that are not considered to be
active; or valuations for which all significant inputs are observable or can be
corroborated by observable market data, either directly or indirectly.
  
    
    Level 3  Valuations in which a significant input or inputs are unobservable and that
are supported by little or no market activity.
  22




---



##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Nonperformance Risk Adjustment
 Fair Value Measurements and Disclosures
  September 30,
    
    
    December 31,2009
    
    
    2008Unrealized loss on credit swaps, at fair
value, without nonperformance risk
adjustments
    
    $
    1,310,921
    
    
    $
    3,427,076Nonperformance risk adjustments
    
    
    (283,755
    )
    
    
    (1,253,615
    )Unrealized loss on credit swaps, at fair
value, after nonperformance risk
adjustments
    
    $
    1,027,166
    
    
    $
    2,173,461
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net credit swap revenue (loss)
without nonperformance risk
adjustments
    
    $
    683,868
    
    
    $
    (734,313
    )
    
    $
    2,124,460
    
    
    $
    (1,496,350
    )Nonperformance risk adjustments
    
    
    (212,033
    )
    
    
    346,630
    
    
    
    (969,861
    )
    
    
    716,042Net credit swap revenue (loss)
after nonperformance risk
adjustments
    
    $
    471,835
    
    
    $
    (387,683
    )
    
    $
    1,154,599
    
    
    $
    (780,308
    )
  23




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Quoted Pricesin
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor
    
    
    Observable
    
    
    Unobservable
    
    
    Assets / LiabilitiesIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    at Fair(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ValueAssetsCash and cash equivalents
    
    $
    568,684
    
    
    $
    
    
    
    $
    
    
    
    $
    568,684Investments
    
    
    
    
    
    
    178,350
    
    
    
    429
    
    
    
    178,779Unrealized gain on credit swaps
    
    
    
    
    
    
    
    
    
    
    670
    
    
    
    670Other assets
    
    
    
    
    
    
    2,896
    
    
    
    
    
    
    
    2,896Total Assets
    
    $
    568,684
    
    
    $
    181,246
    
    
    $
    1,099
    
    
    $
    751,029LiabilitiesUnrealized loss on credit swaps
    
    $
    
    
    
    $
    
    
    
    $
    1,027,166
    
    
    $
    1,027,166Total Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    1,027,166
    
    
    $
    1,027,166
  Quoted Pricesin
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor
    
    
    Observable
    
    
    Unobservable
    
    
    Assets / LiabilitiesIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    at Fair(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ValueAssetsCash and cash equivalents
    
    $
    243,909
    
    
    $
    37,003
    
    
    $
    
    
    
    $
    280,912Investments
    
    
    
    
    
    
    482,134
    
    
    
    4,736
    
    
    
    486,870Other assets
    
    
    
    
    
    
    7,813
    
    
    
    
    
    
    
    7,813Total Assets
    
    $
    243,909
    
    
    $
    526,950
    
    
    $
    4,736
    
    
    $
    775,595LiabilitiesUnrealized loss on credit swaps
    
    $
    
    
    
    $
    
    
    
    $
    2,173,461
    
    
    $
    2,173,461Total Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    2,173,461
    
    
    $
    2,173,461
  24




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Three Months Ended
    
    
    Three Months EndedSeptember 30, 2009
    
    
    September 30, 2008UnrealizedGain onCredit Swaps
    
    
    Investments
    
    
    InvestmentsBalance, beginning of period
    
    $
    
    
    
    $
    263
    
    
    $
    6,782Realized gains (losses)
    
    
    
    
    
    
    262
    
    
    
    (124
    )Unrealized gains (losses)
    
    
    670
    
    
    
    50
    
    
    
    (904
    )Purchases, sales, issuances and settlements
    
    
    
    
    
    
    (146
    )
    
    
    Balance, end of period
    
    $
    670
    
    
    $
    429
    
    
    $
    5,754
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008UnrealizedGain onCredit Swaps
    
    
    Investments
    
    
    InvestmentsBalance, beginning of period
    
    $
    
    
    
    $
    4,737
    
    
    $
    9,657Realized gains (losses)
    
    
    
    
    
    
    1,832
    
    
    
    (124
    )Unrealized gains (losses)
    
    
    670
    
    
    
    138
    
    
    
    (3,903
    )Purchases, sales, issuances and settlements
    
    
    
    
    
    
    (6,278
    )
    
    
    124Balance, end of period
    
    $
    670
    
    
    $
    429
    
    
    $
    5,754
    25




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Unrealized Loss on Credit Swaps
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Balance, beginning of period
    
    $
    (1,497,947
    )
    
    $
    (546,228
    )
    
    $
    (2,173,461
    )
    
    $
    (368,739
    )Net realized losses
    
    
    21,500
    
    
    
    
    
    
    
    58,953
    
    
    
    4,876Unrealized gains (losses)
    
    
    449,281
    
    
    
    (225,685
    )
    
    
    1,087,342
    
    
    
    (408,050
    )Balance, end of period
    
    $
    (1,027,166
    )
    
    $
    (771,913
    )
    
    $
    (1,027,166
    )
    
    $
    (771,913
    )
    Financial Instruments Not Measured at Fair Value
  Fair Value Option
 Financial Instruments Financial Instruments Financial Instruments Financial Instruments
  26




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 6. Credit Events and Terminations of Credit Swaps
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Realized losses on single name credit swaps
    
    $
    (21,500
    )
    
    $
    (84,420
    )
    
    $
    (31,350
    )
    
    $
    (85,320
    )Realized losses on CDS on ABS
    
    
    
    
    
    
    
    
    
    
    (27,628
    )
    
    
    (4,875
    )Total realized losses
    
    $
    (21,500
    )
    
    $
    (84,420
    )
    
    $
    (58,978
    )
    
    $
    (90,195
    )
 Credit Mitigation Transactions
    Credit
Events on Credit Swaps Sold  Single Name
   27




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Credit Events on CDS on ABS
   7. Counterparty Default  LBSF
  8. Variable Interest Entities
    28




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
   9. Earnings (Loss) per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net earnings (loss)
available to common shares
    
    $
    461,543
    
    
    $
    (390,219
    )
    
    $
    1,165,279
    
    
    $
    (797,694
    )Weighted-average basic shares
outstanding
    
    
    39,999
    
    
    
    45,230
    
    
    
    40,430
    
    
    
    45,187Effect of dilutive instruments:Share options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted share units
    
    
    1,415
    
    
    
    
    
    
    
    808
    
    
    
    Dilutive potential shares
    
    
    1,415
    
    
    
    
    
    
    
    808
    
    
    
    Weighted-average diluted shares
    
    
    41,414
    
    
    
    45,230
    
    
    
    41,238
    
    
    
    45,187Basic EPS
    
    $
    11.54
    
    
    $
    (8.63
    )
    
    $
    28.82
    
    
    $
    (17.65
    )Diluted EPS
    
    $
    11.14
    
    
    $
    (8.63
    )
    
    $
    28.26
    
    
    $
    (17.65
    )
    29




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 10. Share Based Compensation
      11. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    462,269
    
    
    $
    (388,822
    )
    
    $
    1,168,019
    
    
    $
    (792,550
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    51
    
    
    
    (108
    )
    
    
    168
    
    
    
    (169
    )Change in net unrealized gains (losses) on 

available-for-sale investments
    
    
    1,603
    
    
    
    (3,022
    )
    
    
    196
    
    
    
    (5,401
    )Comprehensive income (loss)
    
    
    463,923
    
    
    
    (391,952
    )
    
    
    1,168,383
    
    
    
    (798,120
    )Distributions on preferred securities of subsidiary
    
    
    726
    
    
    
    1,397
    
    
    
    2,740
    
    
    
    5,144Comprehensive income (loss) available to common
shares
    
    $
    463,197
    
    
    $
    (393,349
    )
    
    $
    1,165,643
    
    
    $
    (803,264
    )
  30




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 12. CypressTree Acquisition
    Business Combinations
  Intangibles  Goodwill and Other
  31




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Fair Value
    
    
    Accumulated
    
    
    Net Book ValueJuly 9, 2009
    
    
    Amortization
    
    
    September 30, 2009Management contract rights
    
    $
    3,600
    
    
    $
    60
    
    
    $
    3,540Non-compete agreements
    
    
    800
    
    
    
    50
    
    
    
    750Total other intangible assets
    
    $
    4,400
    
    
    $
    110
    
    
    $
    4,290
  Remainder of 2009
    
    $
    1942010
    
    
    6102011
    
    
    6102012
    
    
    4762013
    
    
    3432014
    
    
    343thereafter
    
    
    1,714Total
    
    $
    4,290
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Pro forma revenues (losses)
    
    $
    475,601
    
    
    $
    (377,229
    )
    
    $
    1,205,532
    
    
    $
    (745,717
    )Pro forma net income (loss) available to
common shares
    
    
    460,813
    
    
    
    (390,618
    )
    
    
    1,162,718
    
    
    
    (798,892
    )Proforma earnings (loss) per common share:Pro forma basic earnings (loss) per common
share
    
    $
    11.52
    
    
    $
    (8.64
    )
    
    $
    28.76
    
    
    $
    (17.68
    )Pro forma diluted earnings (loss) per
common share
    
    $
    11.13
    
    
    $
    (8.64
    )
    
    $
    28.20
    
    
    $
    (17.68
    )
  32




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##### Table of Contents



Primus Guaranty, Ltd.
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 13.
Income Taxes
  14. Subsequent Events
    33




---



##### Table of Contents



Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following is a discussion and analysis of our financial condition and results of
operations. This discussion should be read in conjunction with the condensed consolidated
financial statements, including the notes thereto, included elsewhere in this Quarterly Report and
our consolidated financial statements and accompanying notes which appear in the Companys 2008
Annual Report on Form 10-K . It contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those discussed below and in
the Companys 2008 Annual Report on Form 10-K , particularly under Item 1A Risk Factors and the
heading Cautionary Note Regarding Forward-Looking Statements. Capitalized terms used but not
defined in this discussion are as defined elsewhere in this Quarterly Report.
 Business
  Primus Asset Management
   Primus Financial
    34




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##### Table of Contents



PRS Trading / Harrier
   Trends and Business Outlook
    35




---



##### Table of Contents




    
    Amortizing Primus Financials credit swap portfolio;
 
    
    Pursuing new asset management opportunities in credit, structured credit and
derivative markets;
 
    
    Efficiently allocating capital; and
 
    
    Aligning costs with our business approach.
    36




---



##### Table of Contents



Critical Accounting Policies
   37




---



##### Table of Contents



Counterparty Default  LBSF
   Results of Operations
 Introduction
    Three Months Ended September 30, 2009 Compared With Three Months Ended September 30, 2008
 Overview of Financial Results
   38




---



##### Table of Contents



Net Credit Swap Revenue (Loss)
   
    
    Net premiums earned;
 
    
    Net realized gains (losses) on credit swaps, which include gain (losses) on terminated
credit swaps sold and losses on credit events during the period; and
 
    
    Net unrealized gains (losses) on credit swaps.
  39




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##### Table of Contents



Three Months EndedSeptember 30,2009
    
    
    2008Net premiums earned
    
    $
    21,885
    
    
    $
    24,378Net realized gains (losses) on credit swaps
    
    
    (21,500
    )
    
    
    (84,415
    )Net unrealized gains (losses) on credit swaps
    
    
    471,450
    
    
    
    (327,646
    )Total net credit swap revenue (loss)
    
    $
    471,835
    
    
    $
    (387,683
    )
 Net Premiums Earned  Primus Financial
  
    
    Premium income on single name credit swaps sold;
 
    
    Premium income on tranches sold;
 
    
    Premium income on CDS on ABS; and
 
    
    Net premium income (expense) on credit swaps undertaken to offset credit risk.
  Three Months EndedSeptember 30,2009
    
    
    2008Premium income on single name credit swaps sold
    
    $
    16,613
    
    
    $
    18,959Premium income on tranches sold
    
    
    5,200
    
    
    
    5,202Premium income on CDS on ABS
    
    
    85
    
    
    
    262Net premium income (expense) on credit swaps
undertaken to offset credit risk
    
    
    (13
    )
    
    
    (45
    )Total net premiums earned
    
    $
    21,885
    
    
    $
    24,378
     40




---



##### Table of Contents



Net Realized Gains (Losses) on Credit Swaps  Primus Financial
  Three Months EndedSeptember 30,2009
    
    
    2008Realized gains on single name credit swaps
    
    $
    
    
    
    $
    4Realized gains (losses) on single name credit swaps
    
    
    
    
    
    
    (84,419
    )Realized losses on terminated single name credit
swaps sold
    
    
    (21,500
    )
    
    
    Total net realized losses on credit swaps
    
    $
    (21,500
    )
    
    $
    (84,415
    )
  Net Unrealized Gains (Losses) on Credit Swaps  Primus Financial
  Three Months EndedSeptember 30,2009
    
    
    2008Net unrealized gains (losses) on credit swaps sold
    
    $
    214,080
    
    
    $
    (103,202
    )Net unrealized gains (losses) on tranches sold
    
    
    261,924
    
    
    
    (226,310
    )Net unrealized gains (losses) on CDS on ABS
    
    
    (3,759
    )
    
    
    625Net unrealized gains (losses) on credit swaps
undertaken to offset credit risk
    
    
    (795
    )
    
    
    1,241Total net unrealized gains (losses) on credit swaps
    
    $
    471,450
    
    
    $
    (327,646
    )
  Asset Management and Advisory Fees
   41




---



##### Table of Contents



Interest Income
    Three Months EndedSeptember 30,2009
    
    
    2008Interest income
    
    $
    1,218
    
    
    $
    6,212Cash and cash equivalents
    
    $
    568,684
    
    
    $
    298,335Investments
    
    
    178,779
    
    
    
    615,472Total cash, cash equivalents and investments
    
    $
    747,463
    
    
    $
    913,807
 Gain on Retirement of Long-Term Debt
  Other income (loss)
   42




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##### Table of Contents



Operating Expenses
  Three Months EndedSeptember 30,2009
    
    
    2008Compensation and employee benefits
    
    $
    6,418
    
    
    $
    1,739Professional and legal fees
    
    
    2,253
    
    
    
    796Depreciation and amortization
    
    
    344
    
    
    
    336Technology and data
    
    
    847
    
    
    
    854Other
    
    
    1,352
    
    
    
    596Total operating expenses
    
    $
    11,214
    
    
    $
    4,321Number of full-time employees, at end of period
    
    
    45
    
    
    
    52
     43




---



##### Table of Contents



Interest Expense and Preferred Distributions
     Income Taxes
   44




---



##### Table of Contents



Nine Months Ended September 30, 2009 Compared With Nine Months Ended September 30, 2008
 Overview of Financial Results
   Net Credit Swap Revenue (Loss)
   Nine Months EndedSeptember 30,2009
    
    
    2008Primus Financial
    
    $
    1,154,599
    
    
    $
    (781,020
    )PRS Trading/Harrier
    
    
    
    
    
    
    712Total consolidated net credit swap revenue (loss)
    
    $
    1,154,599
    
    
    $
    (780,308
    )
   45




---



##### Table of Contents



Net Credit Swap Revenue (Loss)  Primus Financial
   
    
    Net premiums earned;
 
    
    Net realized gains (losses) on credit swaps, which include gain (losses) on terminated
credit swaps sold and losses on credit events during the period; and
 
    
    Net unrealized gains (losses) on credit swaps.
  Nine Months EndedSeptember 30,2009
    
    
    2008Net premiums earned
    
    $
    66,588
    
    
    $
    78,912Net realized gains (losses) on credit swaps
    
    
    (58,953
    )
    
    
    (90,162
    )Net unrealized gains (losses) on credit swaps
    
    
    1,146,964
    
    
    
    (769,770
    )Total net credit swap revenue (loss)
    
    $
    1,154,599
    
    
    $
    (781,020
    )
 Net Premiums Earned  Primus Financial
  
    
    Premium income on single name credit swaps sold;
 
    
    Premium income on tranches sold;
 
    
    Premium income on CDS on ABS; and
 
    
    Net premium income (expense) on credit swaps undertaken to offset credit risk.
  Nine Months EndedSeptember 30,2009
    
    
    2008Premium income on single name credit swaps sold
    
    $
    50,830
    
    
    $
    62,652Premium income on tranches sold
    
    
    15,431
    
    
    
    15,472Premium income on CDS on ABS
    
    
    316
    
    
    
    815Net premium income (expense) on credit swaps
undertaken to offset credit risk
    
    
    11
    
    
    
    (27
    )Total net premiums earned
    
    $
    66,588
    
    
    $
    78,912
  46




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##### Table of Contents



Net Realized Gains (Losses) on Credit Swaps  Primus Financial
  Nine Months EndedSeptember 30,2009
    
    
    2008Realized gains on terminated single name credit
swaps sold
    
    $
    
    
    
    $
    28Realized gains on single name credit swaps
    
    
    25
    
    
    
    Realized gains (losses) on single name credit swaps
    
    
    (30,764
    )
    
    
    (84,420
    )Realized gains (losses) on CDS on ABS
    
    
    (27,628
    )
    
    
    (4,875
    )Realized gains (losses) on terminated single name
credit swaps sold
    
    
    
    
    
    
    (900
    )Net realized gains (losses) on terminated credit
swaps undertaken to offset credit risk
    
    
    (586
    )
    
    
    5Total net realized losses on credit swaps
    
    $
    (58,953
    )
    
    $
    (90,162
    )
   47




---



##### Table of Contents



Net Unrealized Gains (Losses) on Credit Swaps  Primus Financial
  Nine Months EndedSeptember 30,2009
    
    
    2008Net unrealized gains (losses) on credit swaps sold
    
    $
    530,763
    
    
    $
    (368,590
    )Net unrealized gains (losses) on tranches sold
    
    
    596,448
    
    
    
    (395,299
    )Net unrealized gains (losses) on CDS on ABS
    
    
    21,296
    
    
    
    (7,876
    )Net unrealized gains (losses) on credit swaps
undertaken to offset credit risk
    
    
    (1,543
    )
    
    
    1,995Total net unrealized gains (losses) on credit swaps
    
    $
    1,146,964
    
    
    $
    (769,770
    )
  Asset Management and Advisory Fees
    Interest Income
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Nine Months EndedSeptember 30,2009
    
    
    2008Interest income
    
    $
    4,716
    
    
    $
    21,725Cash and cash equivalents
    
    $
    568,684
    
    
    $
    298,335Investments
    
    
    178,779
    
    
    
    615,472Total cash, cash equivalents and investments
    
    $
    747,463
    
    
    $
    913,807
 Gain on Retirement of Long-Term Debt
    Impairment Losses on Available-for-Sale Investments
  Other income (loss)
   49




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##### Table of Contents



Operating Expenses
  Nine Months EndedSeptember 30,2009
    
    
    2008Compensation and employee benefits
    
    $
    15,699
    
    
    $
    13,894Professional and legal fees
    
    
    5,631
    
    
    
    3,100Depreciation and amortization
    
    
    853
    
    
    
    999Technology and data
    
    
    2,397
    
    
    
    2,865Other
    
    
    3,398
    
    
    
    3,219Total operating expenses
    
    $
    27,978
    
    
    $
    24,077Number of full-time employees, at end of period
    
    
    45
    
    
    
    52
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Interest Expense and Preferred Distributions
      51




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Income Taxes
  Income Taxes
    52




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Non-GAAP Financial Measures  Economic Results
   
    
    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, and
that amortization is added to GAAP net income (loss) available to common shares; and
 
    
    Provision for CDS on ABS credit events; and
 
    
    Reduction in provision for CDS on ABS credit events upon termination of credit swaps.
   53




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008GAAP net income (loss) available to common
shares
    
    $
    461,543
    
    
    $
    (390,219
    )
    
    $
    1,165,279
    
    
    $
    (797,694
    )Adjustments:Less: Change in unrealized fair value of
credit swaps sold (gain) loss by Primus
Financial
    
    
    (471,450
    )
    
    
    327,646
    
    
    
    (1,146,964
    )
    
    
    769,770Less: Realized gains from early
termination of credit swaps sold by Primus
Financial
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (28
    )Add: Amortization of realized gains from
the early termination of credit swap sold by
Primus Financial
    
    
    339
    
    
    
    466
    
    
    
    1,100
    
    
    
    1,746Less: Provision for CDS on ABS credit
events
    
    
    
    
    
    
    
    
    
    
    (15,242
    )
    
    
    (189
    )Add: Reduction in provision for CDS on ABS
credit events upon termination of credit swaps
    
    
    
    
    
    
    
    
    
    
    27,628
    
    
    
    4,875Net Economic Results
    
    $
    (9,568
    )
    
    $
    (62,111
    )
    
    $
    31,801
    
    
    $
    (21,520
    )Economic Results earnings per diluted share
    
    $
    (0.23
    )
    
    $
    (1.37
    )
    
    $
    0.77
    
    
    $
    (0.48
    )Economic Results weighted average common
shares outstanding  GAAP diluted
    
    
    41,414
    
    
    
    45,230
    
    
    
    41,238
    
    
    
    45,187
  Off-Balance Sheet Arrangements
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Contractual Obligations
  Payment due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    13 years
    
    
    35 years
    
    
    5 yearsProperty leases
    
    $
    10,179
    
    
    $
    1,832
    
    
    $
    3,677
    
    
    $
    2,358
    
    
    $
    2,3127% Senior Notes
    
    
    94,613
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,613Interest on 7% Senior Notes (a)
    
    
    173,248
    
    
    
    2,410
    
    
    
    8,093
    
    
    
    13,428
    
    
    
    149,317Subordinated deferrable interest
notes
    
    
    155,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,400Interest on subordinated
deferrable interest notes (b)
    
    
    82,373
    
    
    
    5,362
    
    
    
    10,739
    
    
    
    10,724
    
    
    
    55,548Total
    
    $
    515,813
    
    
    $
    9,604
    
    
    $
    22,509
    
    
    $
    26,510
    
    
    $
    457,190
 (a)
    
    Net interest payments on the outstanding 7% Senior Notes at September 30, 2009 are
adjusted by the interest rate swap agreement, which converts a portion of the interest payment on
the 7% Senior Notes from a fixed to a floating basis, as previously discussed. Future payments of
interest on the interest rate swap will be determined by future LIBOR rates, to which a
predetermined contractual rate is added. For the purpose of this table, estimated future LIBOR
rates were based on the last rate set during the third quarter of 2009. The counterparty has the
right to terminate the interest rate swap agreement in 2011, and for the purpose of this table, the
interest rate swap is assumed to be terminated at that date.(b)
    
    Future payments for interest on our subordinated deferrable interest notes will be determined
by future LIBOR rates, to which a predetermined contractual spread is added, as previously
discussed. For the purpose of this table, estimated future LIBOR rates were based on the last rate
set during the third quarter of 2009. Property leases:
  Liquidity and Capital Resources
 Capital Strategy
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Cash Flows
 Cash flows from operating activities 
 Cash flows from investing activities 
 Cash flows from financing activities 
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Cautionary Note Regarding Forward-Looking Statements
  
    
    fluctuations in the economic, credit, interest rate or foreign
currency environment in the United States and abroad;
    
    the level of activity within the national and international credit markets;
    
    the level of activity in the leveraged buyout and private equity markets;
    
    competitive conditions and pricing levels;
    
    change in rating agency requirements or methodology;
    
    counterparty limits and risk;
    
    legislative and regulatory developments;
    
    technological developments;
    
    changes in tax laws;
    
    changes in international or national political or economic conditions,
including any terrorist attacks;
    
    successful implementation of our 2009 Business Outlook and Strategy
and our ability to effectively integrate CypressTree acquisition and
manage its CLOs and other products; and
    
    uncertainties that have not been identified at this time.
  57




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Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
     58




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Item 4.
    
    Controls and Procedures
    59




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Part II. Other Information
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total Number of
    
    
    Approximate DollarTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    Value of Shares thatNumber of
    
    
    Average
    
    
    as Part of Publicly
    
    
    May Yet Be PurchasedShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    under the Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    Programs (a)July 1  31
    
    
    336,524
    
    
    $
    2.47
    
    
    
    336,524
    
    
    $
    19,140,073August 1  31
    
    
    352,244
    
    
    $
    3.61
    
    
    
    352,244
    
    
    $
    17,868,472September 1  30
    
    
    261,830
    
    
    $
    4.07
    
    
    
    261,830
    
    
    $
    16,802,824Total
    
    
    950,598
    
    
    $
    3.33
    
    
    
    950,598
 (a)
    
    On October 8, 2008, our board of directors authorized the implementation of a buyback
program for the purchase of our common shares and/or the 7% Senior Notes in the aggregate up to
$25.0 million. The amounts in this column do not reflect the cost of approximately $11.5 million
for purchases of our 7% Senior Notes, since inception of our buyback program through the quarter
ended September 30, 2009. 
 Item 6.
    
    Exhibits
  12
    
    
    Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividend Requirements31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200232
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
  60




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SIGNATURES
  PRIMUS GUARANTY, LTD./s/ Richard ClaidenRichard ClaidenChief Financial and Operating Officer
(Duly Authorized Officer and Principal Financial Officer)   61