PRIMUS GUARANTY LTD

CIK:0001170593|SEC Filings

Discontinued Operations

12 Months Ended

Dec. 31, 2011

8. Discontinued Operations

On December 1, 2010, the Company divested its CLO asset management business, which included the sale of CypressTree to a third party. The results of the CLO asset management business have been reclassified as discontinued operations for all periods presented.

Discontinued operations primarily consist of the fee revenues and operating expenses of the CLO asset management business, together with the operating results of the standalone CLOs for the period from January 1, 2010 through December 1, 2010. The operating results of the standalone CLOs were consolidated into the Company’s financial statements as a result of the Company’s adoption of ASC Topic 810, Consolidation, on January 1, 2010. Upon the divestiture of the CLO asset management business, which included the sale of CypressTree on December 1, 2010, the Company determined that it is no longer the primary beneficiary of the CLOs and deconsolidated the CLOs. The operating results of the stand-alone CLOs are identified as discontinued operations attributable to non-parent interest in CLOs in the Company’s consolidated statements of operations. In addition, the gain on the sale was included in discontinued operations. During 2011, realized and unrealized gains (losses) associated with the contingent asset and liabilities are included in discontinued operations.

In connection with the sale of CypressTree, Primus Asset Management agreed to accept a fixed proportion of the future management fees received on the CLOs, which are sub-advised by CypressTree, under its current owner. The CLOs have an estimated average life of 4.5 years. This income is recorded in the “Income (loss) from discontinued operations” caption in the consolidated statements of operations.

The following table represents summarized financial information related to discontinued operations as included in the accompanying consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 (in thousands):


	Year Ended December 31,
	2011		2010			2009
Revenues
Asset management and advisory fees	$	2,247	$	12,396		$	4,561
Interest income		2,163		1,225			62
Impairment loss on investments		—		—			(761	)
Other income (loss)		2,862		8,396			—
Gain on sale of CypressTree		—		113			—
Net CLO loss		—		(91,427	)		—
CLO interest income, net		—		48,256			—

Total revenues		7,272		(21,041	)		3,862

Expenses
Compensation and employee benefits		72		4,046			2,544
Professional and legal fees		95		565			835
Restructuring costs		342		3,862			—
Other		2,630		2,047			3,904
CLO expenses		—		18,003			—

Total expenses		3,139		28,523			7,283

Loss before provision (benefit) for income taxes and loss attributable to non-parent interests in CLOs		4,133		(49,564	)		(3,421	)
Provision (benefit) for income taxes		—		(20	)		1

Loss from discontinuing operations, net of tax		4,133		(49,544	)		(3,422	)
Loss from discontinued operations attributable to non-parent interests in CLOs		—		(61,174	)		—

Income (loss) attributable to common shares	$	4,133	$	11,630		$	(3,422	)

Consolidated statements of cash flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Cash flows from operating activities
Net income (loss) available to common shares	$ (36,800)	$ 255,474	$ 1,460,280
Net loss attributable to non-parent interests in CLOs		(61,174)
Distributions on preferred securities of subsidiary	3,035	3,162	3,417
Net income (loss)	(33,765)	197,462	1,463,697
Non-cash items included in net income (loss):
Net unrealized gains on CLO loans and securities		(69,139)
Net unrealized losses on CLO notes		218,104
Net realized gains by the CLOs		(56,977)
Depreciation and amortization	53	1,114	1,250
Share-based compensation	1,987	11,169	4,728
Net unrealized (gains) losses on credit swaps	64,781	(296,540)	(1,483,763)
Net amortization of premium and discount on securities	10,288	7,945	687
Gain on retirement of long-term debt	(9,145)	(9,866)	(43,151)
Impairment loss on investments			761
Other	(4,073)	(3,763)	1,047
Increase (decrease) in cash resulting from changes in:
CLO cash and cash equivalents		(45,394)
CLO other assets		21,499
CLO other liabilities		(398)
CLO proceeds from sale of CLO loans and securities		848,643
CLO purchases of CLO loans and securities		(817,513)
Restricted cash	(4,034)	(4,050)	(90,610)
Accrued interest and premiums	135	303	305
Other assets	5,044	(4,646)	(3,123)
Purchases of trading account assets		(131,101)
Sales of trading account assets	5,253	131,124	3,940
Accounts payable and accrued expenses	(1,913)	(2,420)	2,923
Payable for credit events	(1,462)	(25,149)	25,410
Restructuring liabilities	(3,693)	3,729
Other liabilities	(1,775)	(1,410)	2,577
Net cash provided by (used in) operating activities	27,681	(27,274)	(113,322)
Cash flows from investing activities
Business acquisition, net of cash received		(3,427)	(2,214)
Fixed asset purchases	(36)	(47)	(121)
Payments received from CLO investments	2,163	1,224	94
Purchases of available-for-sale investments, including restricted investments	(214,354)	(206,911)	(321,596)
Maturities and sales of available-for-sale investments	149,685	187,266	493,399
Net cash provided by (used in) investing activities	(62,542)	(21,895)	169,562
Cash flows from financing activities
Repayment of CLO notes by the CLOs		(37,651)
Retirement of long-term debt	(31,254)	(18,676)	(23,192)
Purchase and retirement of common shares	(19,464)	(13,150)	(10,352)
Purchase of preferred securities of subsidiary	(1,875)		(908)
Net preferred distributions of subsidiary	(3,035)	(3,162)	(3,417)
Net cash used in financing activities	(55,628)	(72,639)	(37,869)
Net effect of exchange rate changes on cash		30	231
Net increase (decrease) in cash	(90,489)	(121,778)	18,602
Cash and cash equivalents at beginning of period	177,736	299,514	280,912
Cash and cash equivalents at end of period	87,247	177,736	299,514
Supplemental disclosures of cash flow information:
Cash paid for interest	5,800	5,709	10,159
Cash paid for taxes		103	137
Supplemental disclosures of CLOs non-cash transactions:
Adoption of ASC Topic 810, Consolidation		265,639
Deconsolidation of CLOs		$ (204,465)

Consolidated Statements of Financial Condition (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 87,247	$ 177,736
Investments (includes $341,485 and $288,815 at fair value as of December 31, 2011 and 2010, respectively)	341,656	288,985
Restricted cash and investments	137,759	138,540
Accrued interest and premiums	5,725	5,860
Unrealized gain on credit swaps, at fair value	0	2,006
Debt issuance costs, net	3,444	4,072
Other assets (includes $7,424 and $11,559 at fair value as of December 31, 2011 and 2010, respectively)	9,993	17,660
Total assets	585,824	634,859
Liabilities
Accounts payable and accrued expenses	5,847	8,701
Unrealized loss on credit swaps, at fair value	457,939	395,164
Payable for credit events	1,985	3,447
Long-term debt	172,334	215,828
Restructuring liabilities	36	3,729
Other liabilities	3,175	6,025
Total liabilities	641,316	632,894
Equity (deficit)
Common shares, $0.08 par value, 62,500,000 shares authorized, 34,838,420 and 38,078,790 shares issued and outstanding at December 31, 2011 and 2010, respectively	2,787	3,046
Additional paid-in capital	260,258	275,453
Accumulated other comprehensive income	1,086	3,333
Retained earnings (deficit)	(409,769)	(372,969)
Total shareholders' equity (deficit) of Primus Guaranty, Ltd	(145,638)	(91,137)
Preferred securities of subsidiary	90,146	93,102
Total equity (deficit)	(55,492)	1,965
Total liabilities and equity (deficit)	$ 585,824	$ 634,859