Last week, I noted that Primus (PRS) announced a fairly significant “credit mitigation” transaction, which clipped the tail risk on about $1.2 billion in notional CDS. Because Primus discloses such events and credit losses as they occur, and the company not writing new CDS business, non-GAPP earnings aren’t really a surprise – economic results of $47.5 million came from CDS premiums (no credit events in Q2) and a repurchase of debt at a large discount. The most interesting development is that Primus is now using its float – over $730 million at quarter’s end – to invest in investment grade corporates. On the conference call, CFO Richard Claiden said that $20 million of holding company capital was now[More...]

Primus Guaranty (PRS) announced yesterday that it entered into a significant credit mitigation deal with one of its counterparties, reworking $1.2 billion in notional value of credit default swaps. According to the press release, $40 million in notional exposure written on a monoline insurer was terminated for $15 million, or 37.5 cents on the dollar. The other billion-plus is being moved to a subsidiary of Primus Financial capitalized with $36 million, which is the maximum exposure (plus future premiums on those swaps) that can be lost. Working backwards, ring-fencing certain swaps clips the tail risk existing in the portfolio at about 3.1% – a fairly high level that’s about 50% above what I’ve modeled previously. From the press[More...]

I’m still in cash in my index trading account. This market is either ready for a blowoff top or a selloff and I can’t tell which one, so I’m chilling here. Today I made some trades in OCNF, PRGN, SRS, and I sold my UNG. I sold UNG around the morning for less than 1% loss. [...]

Ongoing turmoil in the financial markets has resulted in a highly challenging environment for the U.S. insurance industry - a trend that is expected to continue at least through the end of the current year. We also expect further consolidation in the industry. Life Insurers Increased losses in the investment portfolio and lower ...

One area I have been looking to invest in is convertibles (bonds or preferred stock) – the yield component is appealing in distressed securities, and the embedded call option can offer upside exposure to some decent businesses. Although I’ve been enjoying the benefits of having a higher cash balance and little equity exposure, I hold cash to make strategic purchases, not as an end itself. Those of you who have read what I’ve written regarding Primus (PRS, PRD) know that I’m a fan of “stress testing” in circumstances where it’s possible – basically, seeing what kind of hit is priced into a company’s stock. In this case, the company had a nice dividing line between its traditional core assets and a handful[More...]