##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q/A
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 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
    
    98-0402357(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 Clarendon House
2 Church Street
Hamilton HM 11, Bermuda
  441-296-0519
  Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




---



##### Table of Contents



EXPLANATORY NOTE
 Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51
    2




---



##### 



Primus Guaranty, Ltd.
 Form 10-Q/A
   
 INDEX
 Part I. Financial InformationItem 1. Financial Statements
    
    
    4Condensed Consolidated Statements of Financial Condition (Restated) as of
March 31, 2009 (Unaudited) and December 31, 2008
    
    
    4Condensed Consolidated Statements of Operations (Restated) (Unaudited) for the
three months ended March 31, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Cash Flows (Restated) (Unaudited) for the
three months ended March 31, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements (Restated) (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Cautionary Statement Regarding Forward Looking Information
    
    
    49Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 4. Controls and Procedures
    
    
    51Part II. Other InformationItem 1. Legal Proceedings
    
    
    52Item 1A. Risk Factors
    
    
    52Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 6. Exhibits
    
    
    52Signatures
    
    
    53Exhibit 12Exhibit 31.1Exhibit 31.2Exhibit 32
   3




---



##### Table of Contents



Part I. Financial Information
 
  Primus Guaranty, Ltd.
 
 Condensed Consolidated Statements of Financial Condition (Restated)
 (in thousands except share amounts)
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)AssetsCash and cash equivalents
    
    $
    519,461
    
    
    $
    280,912Available-for-sale investments
    
    
    227,956
    
    
    
    482,930Trading account assets
    
    
    3,830
    
    
    
    3,940Accrued interest receivable
    
    
    1,418
    
    
    
    3,704Accrued premiums and receivables on credit swaps
    
    
    3,118
    
    
    
    2,764Fixed assets and software costs, net
    
    
    3,050
    
    
    
    3,308Debt issuance costs, net
    
    
    5,737
    
    
    
    6,153Other assets
    
    
    8,472
    
    
    
    10,520Total assets
    
    $
    773,042
    
    
    $
    794,231Liabilities and EquityAccounts payable and accrued expenses
    
    $
    2,911
    
    
    $
    1,737Accrued compensation
    
    
    450
    
    
    
    1,768Interest payable
    
    
    389
    
    
    
    535Unrealized loss on credit swaps, at fair value
    
    
    2,050,571
    
    
    
    2,173,461Payable for credit events
    
    
    12,716
    
    
    
    3,186Long-term debt
    
    
    305,972
    
    
    
    317,535Other liabilities
    
    
    563
    
    
    
    444Total liabilities
    
    
    2,373,572
    
    
    
    2,498,666Commitments and contingenciesEquity (deficit)Common shares, $0.08 par value, 62,500,000
shares authorized, 40,655,613 and 40,781,538
shares issued and outstanding at March 31, 2009
and December 31, 2008
    
    
    3,252
    
    
    
    3,263Additional paid-in capital
    
    
    281,176
    
    
    
    281,596Accumulated other comprehensive income (loss)
    
    
    (1,564
    )
    
    
    908Retained earnings (deficit)
    
    
    (1,981,915
    )
    
    
    (2,088,723
    )Total shareholders equity (deficit) of
Primus Guaranty, Ltd.
    
    
    (1,699,051
    )
    
    
    (1,802,956
    )Preferred securities of subsidiary
    
    
    98,521
    
    
    
    98,521Total equity (deficit)
    
    
    (1,600,530
    )
    
    
    (1,704,435
    )Total liabilities and equity (deficit)
    
    $
    773,042
    
    
    $
    794,231
 See accompanying notes.
  4




---



##### Table of Contents



Primus Guaranty, Ltd.
 
 Condensed Consolidated Statements of Operations (Restated)
 (in thousands except per share amounts)
 Three Months EndedMarch 31,2009
    
    
    2008(unaudited)RevenuesNet credit swap revenue (loss)
    
    $
    110,881
    
    
    $
    (663,615
    )Asset management and advisory fees
    
    
    419
    
    
    
    1,090Interest income
    
    
    2,373
    
    
    
    9,194Gain on retirement of long-term debt
    
    
    5,759
    
    
    
    Impairment loss on available-for-sale investments
    
    
    (609
    )
    
    
    Other
    
    
    (76
    )
    
    
    (25
    )Total net revenues (losses)
    
    
    118,747
    
    
    
    (653,356
    )ExpensesCompensation and employee benefits
    
    
    4,715
    
    
    
    6,191Professional and legal fees
    
    
    1,421
    
    
    
    1,023Depreciation and amortization
    
    
    258
    
    
    
    329Technology and data
    
    
    818
    
    
    
    1,111Interest expense
    
    
    2,758
    
    
    
    4,891Other
    
    
    883
    
    
    
    1,323Total expenses
    
    
    10,853
    
    
    
    14,868Income (loss) before provision for income taxes
    
    
    107,894
    
    
    
    (668,224
    )Provision for income taxes
    
    
    142
    
    
    
    49Net income (loss)
    
    
    107,752
    
    
    
    (668,273
    )Distributions on preferred securities of subsidiary
    
    
    944
    
    
    
    1,805Net income (loss) available to common shares
    
    $
    106,808
    
    
    $
    (670,078
    )Income (loss) per common share:Basic
    
    $
    2.61
    
    
    $
    (14.85
    )Diluted
    
    $
    2.61
    
    
    $
    (14.85
    )Average common shares outstanding:Basic
    
    
    40,861
    
    
    
    45,108Diluted
    
    
    40,888
    
    
    
    45,108
 See accompanying notes.
  5




---



##### Table of Contents



Primus Guaranty, Ltd.
 
 Condensed Consolidated Statements of Cash Flows (Restated)
 (in thousands)
 Three Months EndedMarch 31,2009
    
    
    2008(unaudited)Cash flows from operating activitiesNet income (loss) available to common shares
    
    $
    106,808
    
    
    $
    (670,078
    )Distributions on preferred securities of subsidiary
    
    
    944
    
    
    
    1,805Net income (loss)
    
    
    107,752
    
    
    
    (668,273
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Non-cash items included in net loss:Depreciation and amortization
    
    
    258
    
    
    
    329Share compensation
    
    
    821
    
    
    
    1,310Net unrealized (gains) losses on credit and other
swaps
    
    
    (122,890
    )
    
    
    686,677Net amortization of premium and discount on
securities
    
    
    (322
    )
    
    
    (765
    )Gain on retirement of long-term debt
    
    
    (5,759
    )
    
    
    Impairment loss on available-for-sale investments
    
    
    609
    
    
    
    Amortization of debt issuance costs
    
    
    72
    
    
    
    78Increase (decrease) in cash resulting from changes in:Accrued interest receivable
    
    
    2,286
    
    
    
    (16
    )Accrued premiums and interest receivable on credit
and other swaps
    
    
    (354
    )
    
    
    154Other assets
    
    
    939
    
    
    
    1,027Trading account assets
    
    
    110
    
    
    
    Accounts payable and accrued expenses
    
    
    1,174
    
    
    
    (255
    )Accrued compensation
    
    
    (1,318
    )
    
    
    (3,457
    )Payable for credit events
    
    
    9,530
    
    
    
    Interest payable
    
    
    (146
    )
    
    
    (308
    )Accrued premiums and payables on credit and
other swaps
    
    
    
    
    
    
    (1,313
    )Restructuring liabilities
    
    
    
    
    
    
    (1,709
    )Other liabilities
    
    
    119
    
    
    
    20Net cash provided by (used in) operating activities
    
    
    (7,119
    )
    
    
    13,499Cash flows from investing activitiesFixed asset purchases and capitalized software costs
    
    
    
    
    
    
    (253
    )Payments received from CLO investments
    
    
    94
    
    
    
    871Purchases of available-for-sale investments
    
    
    
    
    
    
    (568,884
    )Maturities and sales of available-for-sale investments
    
    
    252,196
    
    
    
    767,940Net cash provided by investing activities
    
    
    252,290
    
    
    
    199,674Cash flows from financing activitiesRetirement of long-term debt
    
    
    (4,351
    )
    
    
    Purchase and retirement of common shares
    
    
    (1,252
    )
    
    
    (165
    )Net preferred distributions of subsidiary
    
    
    (944
    )
    
    
    (1,805
    )Net cash used in financing activities
    
    
    (6,547
    )
    
    
    (1,970
    )Net effect of exchange rate changes on cash
    
    
    (75
    )
    
    
    (46
    )Net increase in cash
    
    
    238,549
    
    
    
    211,157Cash and cash equivalents at beginning of period
    
    
    280,912
    
    
    
    242,665Cash and cash equivalents at end of period
    
    $
    519,461
    
    
    $
    453,822Supplemental disclosuresCash paid for interest
    
    $
    2,833
    
    
    $
    5,122Cash paid for taxes
    
    $
    8
    
    
    $
    13
 See accompanying notes.
  6




---



##### Table of Contents



1. Organization and Basis of Presentation
       7




---



##### Table of Contents



Disclosures about Segments
of an Enterprise and Related Information.
   2. Recent Accounting Pronouncements
 Business Combinations
  8




---



##### Table of Contents



Disclosures about Derivative Instruments and
Hedging Activities, an Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and
Hedging Activities
 Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133
and FASB Interpretation No. 45
 Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active
 Disclosures by Public
Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest
Entities
 Amendments to the Impairment Guidance of
EITF No. 99-20. Accounting for Certain Investments in Debt and Equity Securities.
 Recognition and Presentation
of Other-Than Temporary Impairments.
  9




---



##### Table of Contents



Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That are Not Orderly.
 3. Available-for-Sale Investments
 .
  March 31, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government agency
obligations
    
    $
    222,623
    
    
    $
    684
    
    
    $
    
    
    
    $
    223,307Collateralized loan
obligations
    
    
    182
    
    
    
    174
    
    
    
    
    
    
    
    356Corporate debt
securities
    
    
    6,396
    
    
    
    
    
    
    
    (2,112
    )
    
    
    4,284ABS
    
    
    12
    
    
    
    
    
    
    
    (3
    )
    
    
    9Total
    
    $
    229,213
    
    
    $
    858
    
    
    $
    (2,115
    )
    
    $
    227,956
 December 31, 2008Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.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
    
    $
    481,781
    
    
    $
    2,100
    
    
    $
    (951
    )
    
    $
    482,930
  10




---



##### Table of Contents



March 31, 2009Securities 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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Corporate debt securities
    
    
    4,284
    
    
    
    (2,112
    )
    
    
    
    
    
    
    
    
    
    
    4,284
    
    
    
    (2,112
    )ABS
    
    
    9
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    (3
    )Total
    
    $
    4,293
    
    
    $
    (2,115
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,293
    
    
    $
    (2,115
    )
 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
    )
    11




---



##### Table of Contents



4. Net Credit Swap Revenue (Loss) and Portfolio
 Overview
       12




---



##### Table of Contents



Consolidated Net Credit Swap Revenue (Loss) and Credit Swap Portfolio Information
  Three Months EndedMarch 31,2009
    
    
    2008Net premium income
    
    $
    22,469
    
    
    $
    27,312Realized gains
    
    
    
    
    
    
    1,032Realized losses
    
    
    (34,478
    )
    
    
    (5,186
    )Net change in unrealized gains (losses)
    
    
    122,890
    
    
    
    (686,773
    )Net credit swap revenue (loss)
    
    $
    110,881
    
    
    $
    (663,615
    )
  13




---



##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008Gross Notional Amounts:Credit swaps sold-single name
    
    $
    16,459,613
    
    
    $
    17,477,946Credit swaps sold-tranche
    
    
    5,000,000
    
    
    
    5,000,000CDS on ABS
    
    
    43,000
    
    
    
    67,654Credit swaps purchased-single name
    
    
    (11,740
    )
    
    
    (11,740
    )Fair Value:Liability
    
    
    2,050,571
    
    
    
    2,173,461Average Fair Value:Asset
    
    
    
    
    
    
    495Liability
    
    
    1,995,403
    
    
    
    1,321,799
    14




---



##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairMoodys Rating Category
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueBy Single Name Reference
Entity/TrancheCredit Swaps Sold-Single Name:Aaa
    
    $
    376,125
    
    
    $
    (11,250
    )
    
    $
    525,812
    
    
    $
    (19,442
    )Aa
    
    
    2,225,875
    
    
    
    (86,408
    )
    
    
    2,815,912
    
    
    
    (83,984
    )A
    
    
    5,928,825
    
    
    
    (199,273
    )
    
    
    5,825,968
    
    
    
    (162,262
    )Baa
    
    
    6,135,600
    
    
    
    (232,690
    )
    
    
    6,629,514
    
    
    
    (321,765
    )Ba
    
    
    1,171,450
    
    
    
    (103,424
    )
    
    
    1,168,506
    
    
    
    (128,516
    )B
    
    
    353,738
    
    
    
    (85,466
    )
    
    
    253,422
    
    
    
    (30,355
    )Caa
    
    
    107,000
    
    
    
    (19,642
    )
    
    
    112,812
    
    
    
    (47,423
    )Ca
    
    
    105,000
    
    
    
    (47,457
    )
    
    
    105,000
    
    
    
    (48,506
    )C
    
    
    45,000
    
    
    
    (6,519
    )
    
    
    35,000
    
    
    
    (3,189
    )D
    
    
    11,000
    
    
    
    (3,935
    )
    
    
    6,000
    
    
    
    (782
    )Total
    
    $
    16,459,613
    
    
    $
    (796,064
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:Aaa
    
    $
    1,200,000
    
    
    $
    (94,341
    )
    
    $
    2,700,000
    
    
    $
    (495,997
    )Aa
    
    
    2,400,000
    
    
    
    (598,301
    )
    
    
    1,350,000
    
    
    
    (386,705
    )A
    
    
    550,000
    
    
    
    (170,502
    )
    
    
    200,000
    
    
    
    (73,091
    )Baa
    
    
    300,000
    
    
    
    (103,484
    )
    
    
    600,000
    
    
    
    (231,999
    )Ba
    
    
    400,000
    
    
    
    (170,006
    )
    
    
    
    
    
    
    B
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    (88,725
    )Caa
    
    
    150,000
    
    
    
    (95,175
    )
    
    
    
    
    
    
    Total
    
    $
    5,000,000
    
    
    $
    (1,231,809
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:A
    
    $
    
    
    
    $
    
    
    
    $
    5,000
    
    
    $
    (2,530
    )Baa
    
    
    5,000
    
    
    
    (2,608
    )
    
    
    15,000
    
    
    
    (11,089
    )Ba
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    (3,607
    )C
    
    
    38,000
    
    
    
    (23,075
    )
    
    
    42,654
    
    
    
    (36,193
    )Total
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:A
    
    $
    (4,120
    )
    
    $
    507
    
    
    $
    (4,120
    )
    
    $
    536Baa
    
    
    (3,580
    )
    
    
    855
    
    
    
    (3,580
    )
    
    
    474Ba
    
    
    (4,040
    )
    
    
    1,623
    
    
    
    (4,040
    )
    
    
    1,689Total
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699
  15




---



##### Table of Contents



March 31, 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
    
    
    $
    (190
    )
    
    $
    2,411,228
    
    
    $
    (94,793
    )Aa
    
    
    12,473,363
    
    
    
    (601,894
    )
    
    
    11,930,958
    
    
    
    (573,250
    )A
    
    
    2,626,875
    
    
    
    (123,107
    )
    
    
    1,746,917
    
    
    
    (100,189
    )Non rated
    
    
    1,349,375
    
    
    
    (70,873
    )
    
    
    1,388,843
    
    
    
    (77,992
    )Total
    
    $
    16,459,613
    
    
    $
    (796,064
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:Aa
    
    $
    4,550,000
    
    
    $
    (1,097,424
    )
    
    $
    4,550,000
    
    
    $
    (1,132,176
    )A
    
    
    450,000
    
    
    
    (134,385
    )
    
    
    450,000
    
    
    
    (144,341
    )Total
    
    $
    5,000,000
    
    
    $
    (1,231,809
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:Aa
    
    $
    8,000
    
    
    $
    (5,250
    )
    
    $
    43,494
    
    
    $
    (32,519
    )A
    
    
    30,000
    
    
    
    (17,105
    )
    
    
    19,160
    
    
    
    (17,093
    )Non rated
    
    
    5,000
    
    
    
    (3,328
    )
    
    
    5,000
    
    
    
    (3,807
    )Total
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:Aa
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699
  16




---



##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairS&P Rating Category
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueBy Single
Name Reference Entity/TrancheCredit Swaps Sold-Single Name:AAA
    
    $
    376,125
    
    
    $
    (11,250
    )
    
    $
    555,812
    
    
    $
    (19,594
    )AA
    
    
    2,016,375
    
    
    
    (84,699
    )
    
    
    2,276,042
    
    
    
    (78,128
    )A
    
    
    6,617,250
    
    
    
    (213,773
    )
    
    
    6,984,696
    
    
    
    (200,543
    )BBB
    
    
    6,032,300
    
    
    
    (256,504
    )
    
    
    6,427,687
    
    
    
    (336,933
    )BB
    
    
    982,950
    
    
    
    (132,068
    )
    
    
    722,933
    
    
    
    (71,601
    )B
    
    
    143,313
    
    
    
    (13,548
    )
    
    
    289,246
    
    
    
    (71,219
    )CCC
    
    
    255,300
    
    
    
    (76,621
    )
    
    
    180,530
    
    
    
    (64,235
    )CC
    
    
    10,000
    
    
    
    (2,721
    )
    
    
    
    
    
    
    C
    
    
    15,000
    
    
    
    (945
    )
    
    
    35,000
    
    
    
    (3,189
    )D
    
    
    11,000
    
    
    
    (3,935
    )
    
    
    6,000
    
    
    
    (782
    )Total
    
    $
    16,459,613
    
    
    $
    (796,064
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:AAA
    
    $
    2,900,000
    
    
    $
    (512,155
    )
    
    $
    3,600,000
    
    
    $
    (738,361
    )AA
    
    
    700,000
    
    
    
    (180,487
    )
    
    
    450,000
    
    
    
    (144,341
    )A
    
    
    550,000
    
    
    
    (170,502
    )
    
    
    100,000
    
    
    
    (37,107
    )BBB
    
    
    500,000
    
    
    
    (188,997
    )
    
    
    500,000
    
    
    
    (187,384
    )BB
    
    
    200,000
    
    
    
    (84,493
    )
    
    
    200,000
    
    
    
    (80,599
    )B
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    (60,460
    )CCC
    
    
    150,000
    
    
    
    (95,175
    )
    
    
    50,000
    
    
    
    (28,265
    )Total
    
    $
    5,000,000
    
    
    $
    (1,231,809
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:BBB
    
    $
    15,000
    
    
    $
    (8,409
    )
    
    $
    15,000
    
    
    $
    (10,828
    )BB
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    (6,727
    )B
    
    
    10,000
    
    
    
    (6,057
    )
    
    
    10,000
    
    
    
    (6,597
    )CCC
    
    
    8,000
    
    
    
    (5,025
    )
    
    
    10,000
    
    
    
    (7,747
    )CC
    
    
    10,000
    
    
    
    (6,192
    )
    
    
    22,654
    
    
    
    (21,520
    )Total
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:A
    
    $
    (4,120
    )
    
    $
    507
    
    
    $
    (4,120
    )
    
    $
    536BBB
    
    
    (7,620
    )
    
    
    2,478
    
    
    
    (7,620
    )
    
    
    2,163Total
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699
  17




---



##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairS&P Rating Category
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueBy Counterparty Buyer / (Seller)Credit Swaps Sold-Single Name:AA
    
    $
    5,850,913
    
    
    $
    (288,491
    )
    
    $
    7,620,037
    
    
    $
    (350,248
    )A
    
    
    9,259,325
    
    
    
    (436,700
    )
    
    
    8,469,066
    
    
    
    (417,984
    )Non rated
    
    
    1,349,375
    
    
    
    (70,873
    )
    
    
    1,388,843
    
    
    
    (77,992
    )Total
    
    $
    16,459,613
    
    
    $
    (796,064
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-Tranche:AA
    
    $
    2,850,000
    
    
    $
    (611,671
    )
    
    $
    2,850,000
    
    
    $
    (640,545
    )A
    
    
    2,150,000
    
    
    
    (620,138
    )
    
    
    2,150,000
    
    
    
    (635,972
    )Total
    
    $
    5,000,000
    
    
    $
    (1,231,809
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABS:A
    
    $
    38,000
    
    
    $
    (22,355
    )
    
    $
    62,654
    
    
    $
    (49,612
    )Non rated
    
    
    5,000
    
    
    
    (3,328
    )
    
    
    5,000
    
    
    
    (3,807
    )Total
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single Name:A
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699
  18




---



##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairCountry of Domicile
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueCredit Swaps Sold-Single NameBy Reference Entity:North America
    
    $
    8,783,250
    
    
    $
    (505,688
    )
    
    $
    9,135,739
    
    
    $
    (481,009
    )Europe
    
    
    6,805,363
    
    
    
    (247,475
    )
    
    
    7,456,207
    
    
    
    (314,651
    )Asia-Pacific
    
    
    692,000
    
    
    
    (35,218
    )
    
    
    707,000
    
    
    
    (38,839
    )Others
    
    
    179,000
    
    
    
    (7,683
    )
    
    
    179,000
    
    
    
    (11,725
    )Total
    
    $
    16,459,613
    
    
    $
    (796,064
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )By Counterparty:North America
    
    $
    8,482,963
    
    
    $
    (416,738
    )
    
    $
    8,872,732
    
    
    $
    (439,704
    )Europe
    
    
    7,839,650
    
    
    
    (374,915
    )
    
    
    8,463,214
    
    
    
    (401,245
    )Asia-Pacific
    
    
    132,000
    
    
    
    (4,369
    )
    
    
    132,000
    
    
    
    (5,203
    )Others
    
    
    5,000
    
    
    
    (42
    )
    
    
    10,000
    
    
    
    (72
    )Total
    
    $
    16,459,613
    
    
    $
    (796,064
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold -TrancheBy Counterparty:North America
    
    $
    600,000
    
    
    $
    (144,961
    )
    
    $
    600,000
    
    
    $
    (143,205
    )Europe
    
    
    4,400,000
    
    
    
    (1,086,848
    )
    
    
    4,400,000
    
    
    
    (1,133,312
    )Total
    
    $
    5,000,000
    
    
    $
    (1,231,809
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABSBy Reference Entity:North America
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Total
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )By Counterparty:North America
    
    $
    30,000
    
    
    $
    (18,184
    )
    
    $
    38,494
    
    
    $
    (27,695
    )Europe
    
    
    13,000
    
    
    
    (7,499
    )
    
    
    29,160
    
    
    
    (25,724
    )Total
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit Swaps Purchased-Single NameBy Reference Entity:North America
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699By Counterparty:Europe
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699
  19




---



##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueCredit Swaps Sold-Single NameYear of Maturity2009
    
    $
    1,949,850
    
    
    $
    (32,745
    )
    
    $
    2,628,795
    
    
    $
    (43,412
    )2010
    
    
    5,705,438
    
    
    
    (236,676
    )
    
    
    5,815,475
    
    
    
    (231,783
    )2011
    
    
    2,712,875
    
    
    
    (180,950
    )
    
    
    2770,195
    
    
    
    (187,662
    )2012
    
    
    4,970,575
    
    
    
    (298,402
    )
    
    
    5,106,916
    
    
    
    (325,565
    )2013
    
    
    1,120,875
    
    
    
    (47,291
    )
    
    
    1,156,565
    
    
    
    (57,802
    )Total
    
    $
    16,459,613
    
    
    $
    (796,064
    )
    
    $
    17,477,946
    
    
    $
    (846,224
    )Credit Swaps Sold-TrancheYear of Maturity2012
    
    $
    1,000,000
    
    
    $
    (50,318
    )
    
    $
    1,000,000
    
    
    $
    (70,593
    )2013
    
    
    350,000
    
    
    
    (175,197
    )
    
    
    350,000
    
    
    
    (167,083
    )2014
    
    
    3,650,000
    
    
    
    (1,006,294
    )
    
    
    3,650,000
    
    
    
    (1,038,841
    )Total
    
    $
    5,000,000
    
    
    $
    (1,231,809
    )
    
    $
    5,000,000
    
    
    $
    (1,276,517
    )CDS on ABSYear of Maturity2009
    
    $
    18,000
    
    
    $
    (12,297
    )
    
    $
    
    
    
    $
    2010
    
    
    5,000
    
    
    
    (2,248
    )
    
    
    10,000
    
    
    
    (6,597
    )2011
    
    
    20,000
    
    
    
    (11,138
    )
    
    
    5,000
    
    
    
    (4,491
    )2012
    
    
    
    
    
    
    
    
    
    
    14,160
    
    
    
    (10,742
    )2013
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    (12,002
    )2014
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    (11,554
    )2016
    
    
    
    
    
    
    
    
    
    
    8,494
    
    
    
    (8,033
    )Total
    
    $
    43,000
    
    
    $
    (25,683
    )
    
    $
    67,654
    
    
    $
    (53,419
    )Credit
Swaps Purchased-Single NameYear of Maturity2014
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699Total
    
    $
    (11,740
    )
    
    $
    2,985
    
    
    $
    (11,740
    )
    
    $
    2,699
  20




---



##### Table of Contents



5. Financial Instruments and Fair Value 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.
  21




---



##### Table of Contents



Nonperformance Risk Adjustment
   Quoted Pricesin
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significant
    
    
    Assets /for
    
    
    Observable
    
    
    Unobservable
    
    
    LiabilitiesIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    at Fair(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ValueAssetsCash and cash equivalents
    
    $
    519,461
    
    
    $
    
    
    
    $
    
    
    
    $
    519,461Available-for-sale investments
    
    
    
    
    
    
    227,591
    
    
    
    365
    
    
    
    227,956Trading account assets
    
    
    
    
    
    
    
    
    
    
    3,830
    
    
    
    3,830Other assets
    
    
    
    
    
    
    6,704
    
    
    
    
    
    
    
    6,704Total Assets
    
    $
    519,461
    
    
    $
    234,295
    
    
    $
    4,195
    
    
    $
    757,951LiabilitiesUnrealized loss on credit swaps
    
    $
    
    
    
    $
    
    
    
    $
    2,050,571
    
    
    $
    2,050,571Total Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    2,050,571
    
    
    $
    2,050,571
  22




---



##### Table of Contents



Quoted Pricesin
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significant
    
    
    Assets /for
    
    
    Observable
    
    
    Unobservable
    
    
    LiabilitiesIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    at Fair(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ValueAssetsCash and cash equivalents
    
    $
    243,909
    
    
    $
    37,003
    
    
    $
    
    
    
    $
    280,912Available-for-sale investments
    
    
    
    
    
    
    482,134
    
    
    
    796
    
    
    
    482,930Trading account assets
    
    
    
    
    
    
    
    
    
    
    3,940
    
    
    
    3,940Other 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
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2009
    
    
    March 31, 2008Trading
    
    
    Available-for-Account
    
    
    Sale
    
    
    Available-for-SaleAssets
    
    
    Investments
    
    
    InvestmentsBalance, beginning of period
    
    $
    3,940
    
    
    $
    796
    
    
    $
    9,657Realized losses
    
    
    
    
    
    
    (614
    )
    
    
    (4,876
    )Unrealized gains (losses)
    
    
    (110
    )
    
    
    171
    
    
    
    (2,760
    )Purchases, sales, issuances and settlements
    
    
    
    
    
    
    12
    
    
    
    5,000Balance, end of period
    
    $
    3,830
    
    
    $
    365
    
    
    $
    7,021
   23




---



##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008Balance, beginning of period
    
    $
    (2,173,461
    )
    
    $
    (368,739
    )Realized losses
    
    
    34,478
    
    
    
    4,876Unrealized gains (losses)
    
    
    88,412
    
    
    
    (349,750
    )Balance, end of period
    
    $
    (2,050,571
    )
    
    $
    (713,613
    )
  Fair Value Option
  6. Credit Events and Terminations of Credit Swaps
  Three Months EndedMarch 31,2009
    
    
    2008Realized losses on single name credit swaps
    
    $
    (9,850
    )
    
    $
    (2
    )Realized losses on CDS on ABS
    
    
    (24,628
    )
    
    
    (4,875
    )Total realized losses
    
    $
    (34,478
    )
    
    $
    (4,877
    )
  24




---



##### Table of Contents



Credit
Swaps Sold  Single Name
  CDS on ABS
     7. Counterparty Default  Lehman Brothers Special Financing Inc.
   25




---



##### Table of Contents



8. Variable Interest Entities
 Consolidation of Variable Interest Entities .
      26




---



##### Table of Contents



9. Earnings (Loss) per Share
  Three Months EndedMarch 31,2009
    
    
    2008Net earnings (loss) available to common shares
    
    $
    106,808
    
    
    $
    (670,078
    )Weighted-average basic shares
outstanding
    
    
    40,861
    
    
    
    45,108Effect of dilutive instrumentsEmployee options
    
    
    
    
    
    
    Restricted share units
    
    
    27
    
    
    
    Warrants
    
    
    
    
    
    
    Dilutive potential shares
    
    
    27
    
    
    
    Diluted shares
    
    
    40,888
    
    
    
    45,108Basic EPS
    
    $
    2.61
    
    
    $
    (14.85
    )Diluted EPS
    
    $
    2.61
    
    
    $
    (14.85
    )
  10. Share Based Compensation
 Share-Based Payment
    27




---



##### Table of Contents



11. Comprehensive Income (Loss) (Restated)
  Three Months EndedMarch 31,2009
    
    
    2008Net income (loss)
    
    $
    107,752
    
    
    $
    (668,273
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    (75
    )
    
    
    (46
    )Change in net unrealized losses on
available-for-sale investments
    
    
    (2,397
    )
    
    
    (1,275
    )Comprehensive income (loss):
    
    
    105,280
    
    
    
    (669,594
    )Distributions on preferred securities of subsidiary
    
    
    944
    
    
    
    1,805Comprehensive income (loss) available to common shares
    
    $
    104,336
    
    
    $
    (671,399
    )
 12. Subsequent Events
   13. Restatement for the effects of the adoption of SFAS No. 160
   28




---



##### Table of Contents



March 31,
    
    
    December 31,
    
    
    March 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(As Previously Reported)
    
    
    (As Restated)Total liabilities
    
    $
    2,373,572
    
    
    $
    2,498,666
    
    
    $
    2,373,572
    
    
    $
    2,498,666Preferred securities of subsidiary
    
    
    98,521
    
    
    
    98,521
    
    
    
    N/A
    
    
    
    N/ATotal shareholders equity
(deficit) of Primus Guaranty,
Ltd.
    
    
    (1,699,051
    )
    
    
    (1,802,956
    )
    
    
    (1,699,051
    )
    
    
    (1,802,956
    )Preferred securities of subsidiary
    
    
    
    
    
    
    
    
    
    
    98,521
    
    
    
    98,521Total equity (deficit)
    
    
    (1,699,051
    )
    
    
    (1,802,956
    )
    
    
    (1,600,530
    )
    
    
    (1,704,435
    )
  Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(As Previously Reported)
    
    
    (As Restated)Income (loss) before provision for income taxes
    
    $
    106,950
    
    
    $
    (670,029
    )
    
    $
    107,894
    
    
    $
    (668,224
    )Provision (benefit) for income taxes
    
    
    142
    
    
    
    49
    
    
    
    142
    
    
    
    49Net income (loss)
    
    
    N/A
    
    
    
    N/A
    
    
    
    107,752
    
    
    
    (668,273
    )Distributions on preferred securities of subsidiary
    
    
    944
    
    
    
    1,805
    
    
    
    944
    
    
    
    1,805Net income (loss) available to common shares
    
    $
    106,808
    
    
    $
    (670,078
    )
    
    $
    106,808
    
    
    $
    (670,078
    )
  Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(As Previously Reported)
    
    
    (As Restated)Net income (loss) available to common shares
    
    $
    N/A
    
    
    $
    N/A
    
    
    $
    106,808
    
    
    $
    (670,078
    )Distributions on preferred securities of subsidiary
    
    
    N/A
    
    
    
    N/A
    
    
    
    944
    
    
    
    1,805Net income (loss)
    
    
    106,808
    
    
    
    (670,078
    )
    
    
    107,752
    
    
    
    (668,273
    )
  29




---



##### 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.
 Business
  Primus Financial
     Primus Asset Management
   30




---



##### Table of Contents



PRS Trading / Harrier
   2009 Trends and Business Outlook
    
    
    Additional write-downs and sales of distressed credit assets;
 
    
    Further consolidation of major banks and credit swap dealers;
 
    
    Increased credit default swap market regulation; and
 
    
    One or more credit default swap clearinghouses.
  31




---



##### Table of Contents




    
    Amortizing Primus Financials credit swap portfolio;
 
    
    Pursuing new opportunities in credit, structured credit and derivative markets;
and
 
    
    Aligning costs with our business approach.
   Critical Accounting Policies
   Valuation of Financial Instruments
   32




---



##### Table of Contents




    
    Level 1  Valuations based on unadjusted quoted prices in active markets for identical
assets or 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.
   33




---



##### Table of Contents



Nonperformance Risk Adjustment
  Level 3 Assets and Liabilities
   Quoted Pricesin
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significant
    
    
    Assets /for
    
    
    Observable
    
    
    Unobservable
    
    
    LiabilitiesIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    at Fair(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ValueTotal assets
    
    $
    519,461
    
    
    $
    234,295
    
    
    $
    4,195
    
    
    $
    757,951Percentage of total
assets measured at
fair value
    
    
    68.5
    %
    
    
    30.9
    %
    
    
    0.6
    %
    
    
    100
    %Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    2,050,571
    
    
    $
    2,050,571Percentage of total
liabilities
measured at fair
value
    
    
    
    
    
    
    
    
    
    
    100
    %
    
    
    100
    %
  34




---



##### Table of Contents



Valuation Techniques  Credit Swaps
  
    
    The contractual terms of the swap contract, which include the Reference Entity, the
notional value, the maturity, the credit swap premium and the currency of the swap.
 
    
    Current market data, including credit swap premium levels pertinent to each Reference
Entity, estimated recovery rates on Reference Entities, market interest rates, foreign
exchange rates, an estimate of mid-market prices to exit prices, and for tranche
transactions, estimates of the correlation of the underlying Reference Entities within
each tranche transaction.
 
    
    Valuation models, which are used to derive a fair value of credit swaps. The valuation
models have been internally developed but are benchmarked against market-standard models.
 
    
    Consideration of the credit risk of Primus Financials counterparties, as well as its
own nonperformance risk. SFAS No. 157 requires that nonperformance risk be considered when
determining the fair value of Primus Financials credit swaps.
 
    
    Fair value estimates of credit swaps from third-party valuation services and/or credit
swap counterparties.
  
    
    For single name credit swaps, Primus Financial calculates a mid-market valuation for
each credit swap in its portfolio using a credit swap valuation model. The inputs to the
valuation model include: current credit swap premium quotes obtained from an independent
pricing service on the Reference Entities, estimated recovery rates on Reference Entities,
current interest rates and foreign exchange rates. The independent pricing service obtains
mid-market credit swap premium quotes from a number of dealers in the credit swap market
across a range of standard maturities and restructuring terms, and computes average credit
swap premium quotes on specific Reference Entities. Primus Financial adjusts the
independent mid-market credit swap premium quotes to derive estimated exit price
valuations.
 
    
    For tranche credit swaps, Primus Financial calculates a mid-market valuation for each
tranche transaction using a tranche valuation model. The inputs to the tranche valuation
model include: current credit swap premium quotes obtained from an independent pricing
service on the Reference Entities within the tranche, estimated recovery rates on the
Reference Entities within the tranche, current interest rates market and correlation
levels derived from credit swap indices. Primus Financial adjusts the mid-market
valuations
obtained from the model to estimated exit price valuations, using mid-market to exit price
quotes obtained from tranche counterparties.
  35




---



##### Table of Contents




    
    For CDS on ABS, Primus Financial obtains expected cash flows on the underlying
securities from an independent valuation service and quotes from Primus Financials
counterparties. Primus Financial uses the cash flow data as input to a CDS on ABS
valuation model to obtain mid-market valuations. Primus Financial adjusts the mid-market
valuations to obtain exit price valuations.
 Valuation Techniques  Other Financial Instruments
  
    
    For cash and cash equivalents, which include deposits in banks and money market
accounts, the fair value of these instruments is based upon quoted market prices. We do
not adjust the quoted price for such instruments.
 
    
    For U.S. government agency obligations, commercial paper and corporate debt securities,
the fair value is based upon observable quoted market prices and benchmarked to
third-party quotes.
 
    
    For the interest rate swap, the fair value is based upon observable market data
including contractual terms, market prices and interest rates and is benchmarked to a
third-party quote.
 
    
    For the ABS, the fair value is based upon a valuation from an independent valuation
service, which estimates the value of the bond by utilizing a valuation model. This model
incorporates projected cash flows, utilizing default, prepayment, recovery and interest
rate assumptions.
 
    
    For the two CLO investments, the fair value is based upon a valuation model which
includes observable inputs, where available. The model calculates the present value of
expected cash flows using estimates of key portfolio assumptions, including forecasted
credit losses, prepayment rates, forward yield curves and discount rates commensurate with
the risk involved. The valuations are benchmarked to third-party quotes.
 Share-Based Employee Compensation Plans
 Share-Based
Payment
   36




---



##### Table of Contents



Counterparty Default  Lehman Brothers Special Financing Inc.
   Results of Operations
 Introduction
    Three Months Ended March 31, 2009 Compared With Three Months Ended March 31, 2008
 Overview of Financial Results
   37




---



##### Table of Contents



Net Credit Swap Revenue (Loss)
   Three Months EndedMarch 31,2009
    
    
    2008Primus Financial
    
    $
    110,881
    
    
    $
    (664,327
    )PRS Trading/Harrier
    
    
    
    
    
    
    712Total consolidated net credit swap revenue (loss)
    
    $
    110,881
    
    
    $
    (663,615
    )
  38




---



##### 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.
  Three Months EndedMarch 31,2009
    
    
    2008Net premiums earned
    
    $
    22,469
    
    
    $
    27,295Net realized losses on credit swaps
    
    
    (34,478
    )
    
    
    (4,849
    )Net unrealized gains (losses) on credit swaps
    
    
    122,890
    
    
    
    (686,773
    )Total net credit swap revenue (loss)
    
    $
    110,881
    
    
    $
    (664,327
    )
 Net Premiums Earned  Primus Financial
  
    
    Premium income on single name credit swaps sold;
 
    
    Premium income on tranches sold;
 
    
    Premium income on CDS on ABS;
 
    
    Net premium income (expense) on credit swaps undertaken to offset credit risk.
  Three Months EndedMarch 31,2009
    
    
    2008Premium income on single name credit swaps sold
    
    $
    17,233
    
    
    $
    21,884Premium income on tranches sold
    
    
    5,087
    
    
    
    5,123Premium income on CDS on ABS
    
    
    137
    
    
    
    280Net premium income (expense) on credit swaps
undertaken to offset credit risk
    
    
    12
    
    
    
    8Total net premiums earned
    
    $
    22,469
    
    
    $
    27,295
  39




---



##### Table of Contents



Net Realized Gains (Losses) on Credit Swaps  Primus Financial
  Three Months EndedMarch 31,2009
    
    
    2008Realized gains on terminated single name
credit swaps sold
    
    $
    
    
    
    $
    24Realized losses on single name credit swaps
    
    
    (9,850
    )
    
    
    Realized losses on CDS on ABS
    
    
    (24,628
    )
    
    
    (4,875
    )Realized losses on terminated single name
credit swaps sold
    
    
    
    
    
    
    (2
    )Net realized gains on terminated credit
swaps undertaken to offset credit risk
    
    
    
    
    
    
    4Total net realized losses on credit swaps
    
    $
    (34,478
    )
    
    $
    (4,849
    )
   40




---



##### Table of Contents



Net Unrealized Gains (Losses) on Credit Swaps  Primus Financial
  Three Months EndedMarch 31,2009
    
    
    2008Net unrealized gains (losses) on credit swaps sold
    
    $
    50,456
    
    
    $
    (342,261
    )Net unrealized gains (losses) on tranches sold
    
    
    44,708
    
    
    
    (341,405
    )Net unrealized gains (losses) on CDS on ABS
    
    
    27,735
    
    
    
    (3,471
    )Net unrealized gains (losses) on credit swaps
undertaken to offset credit risk
    
    
    (9
    )
    
    
    364Total net unrealized gains (losses) on credit swaps
    
    $
    122,890
    
    
    $
    (686,773
    )
  Asset Management and Advisory Fees
    Interest Income
   41




---



##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008Interest income
    
    $
    2,373
    
    
    $
    9,194Cash and cash equivalents
    
    $
    519,461
    
    
    $
    453,822Available-for-sale securities
    
    
    227,956
    
    
    
    417,194Total cash, cash equivalents and
available-for-sale securities
    
    $
    747,417
    
    
    $
    871,016
 Gain on Retirement of Long-Term Debt
  Impairment Loss on Available-for-Sale Investments
  Other
    42




---



##### Table of Contents



Operating Expenses
  Three Months EndedMarch 31,2009
    
    
    2008Compensation and employee benefits
    
    $
    4,715
    
    
    $
    6,191Professional and legal fees
    
    
    1,421
    
    
    
    1,023Depreciation and amortization
    
    
    258
    
    
    
    329Technology and data
    
    
    818
    
    
    
    1,111Other
    
    
    883
    
    
    
    1,323Total operating expenses
    
    $
    8,095
    
    
    $
    9,977Number of full-time employees, at end of period
    
    
    39
    
    
    
    52
      43




---



##### Table of Contents



Interest Expense and Preferred Distributions
     Income Taxes
   44




---



##### Table of Contents



Income Taxes
  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.
   45




---



##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008GAAP net income (loss) available to common shares
    
    $
    106,808
    
    
    $
    (670,078
    )Adjustments:Less: Change in unrealized fair value of credit
swaps sold (gain) loss by Primus Financial
    
    
    (122,890
    )
    
    
    686,772Less: Realized gains from early termination of
credit swaps sold by Primus Financial
    
    
    
    
    
    
    (24
    )Add: Amortization of realized gains from the
early termination of credit swap sold by Primus
Financial
    
    
    393
    
    
    
    733Less: Provision for CDS on ABS credit events
    
    
    (15,054
    )
    
    
    (189
    )Add: Reduction in provision for CDS on ABS
credit events upon termination of credit swaps
    
    
    24,628
    
    
    
    4,875Net Economic Results
    
    $
    (6,115
    )
    
    $
    22,089Economic earnings (loss) per diluted share
    
    $
    (0.15
    )
    
    $
    0.49Economic weighted average common shares
outstanding  diluted
    
    
    40,861
    
    
    
    45,116
  Off-Balance Sheet Arrangements
   46




---



##### Table of Contents



Contractual Obligations
  Payment due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsProperty leases
    
    $
    8,185
    
    
    $
    1,202
    
    
    $
    2,425
    
    
    $
    2,343
    
    
    $
    2,2157% Senior Notes
    
    
    99,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,268Interest on 7% Senior Notes (b)
    
    
    182,935
    
    
    
    3,362
    
    
    
    7,670
    
    
    
    13,897
    
    
    
    158,006Subordinated deferrable interest notes
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000Interest on subordinated deferrable interest notes (a)
    
    
    104,035
    
    
    
    6,752
    
    
    
    13,522
    
    
    
    13,504
    
    
    
    70,257Total
    
    $
    594,423
    
    
    $
    11,316
    
    
    $
    23,617
    
    
    $
    29,744
    
    
    $
    529,746
 (a)
    
    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 first quarter of 2009.(b)
    
    Net interest payments on the outstanding $99.3 million, 7% Senior Notes at March 31, 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 first 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. Property leases:
   47




---



##### Table of Contents



Liquidity and Capital Resources
 Capital Strategy
    Cash Flows
 Cash flows from operating activities 
 Cash flows from investing activities 
 Cash flows from financing activities 
   48




---



##### Table of Contents



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
    
    uncertainties that have not been identified at this time.
  49




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
     50




---



##### Table of Contents



Item 4. Controls and Procedures
    51




---



##### Table of Contents



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)January 1
 31
    
    
    161,570
    
    
    $
    1.74
    
    
    
    161,570
    
    
    $
    21,431,189February 1  28
    
    
    125,141
    
    
    $
    1.48
    
    
    
    125,141
    
    
    $
    21,245,980March 1  31
    
    
    413,052
    
    
    $
    1.61
    
    
    
    413,052
    
    
    $
    20,580,966Total
    
    
    699,763
    
    
    $
    1.62
    
    
    
    699,763
 (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 $9.4 million for
purchases of our 7% Senior Notes, since inception of our buyback program through the quarter ended
March 31, 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
  52




---



##### Table of Contents



SIGNATURES
  PRIMUS GUARANTY, LTD./s/ Richard ClaidenRichard ClaidenChief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)   53




---



##### Table of Contents



EXHIBIT INDEX
 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