PRS Prudential Financial Inc

 

 

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 June 30, 2011

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.

(Exact name of registrant as specified in its charter)

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
(Address of principal executive offices, including zip code)

441-296-0519
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 5, 2011, the number of shares outstanding of the issuer’s common shares, $0.08 par value, was 37,144,073.

 

 

Primus Guaranty, Ltd.

Form 10-Q

For the quarterly period ended June 30, 2011

INDEX

Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition as of June 30, 2011 (Unaudited) and December 31, 2010			3
Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2011 and 2010			4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2011 and 2010			5
Condensed Consolidated Statements of Equity for the six months ended June 30, 2011 (Unaudited) and year ended December 31, 2010			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Cautionary Statement Regarding Forward Looking Information			48
Item 3. Quantitative and Qualitative Disclosures about Market Risk			49
Item 4. Controls and Procedures			50
Part II. Other Information
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 6. Exhibits			51
Signatures			52
Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I. Financial Information

Item 1.		Financial Statements

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(in thousands except share amounts)

		June 30,				December 31,
		2011				2010
Assets
Cash and cash equivalents		$	115,516			$	177,736
Investments (includes $335,856 and $288,815 at fair value as of June 30, 2011 and December 31, 2010, respectively)			336,027				288,985
Restricted cash and investments			135,080				138,540
Accrued interest and premiums			5,632				5,860
Unrealized gain on credit swaps, at fair value			2,396				2,006
Debt issuance costs, net			3,865				4,072
Other assets (includes $9,605 and $11,559 at fair value as of June 30, 2011 and December 31, 2010, respectively)			12,840				17,660
Total assets		$	611,356			$	634,859
Liabilities and Equity
Liabilities
Accounts payable and accrued expenses		$	4,401			$	8,701
Unrealized loss on credit swaps, at fair value			255,364				395,164
Payable for credit events			2,531				3,447
Long-term debt			202,688				215,828
Restructuring liabilities			61				3,729
Other liabilities			3,440				6,025
Total liabilities			468,485				632,894
Commitments and contingencies
Equity (deficit)
Common shares, $0.08 par value, 62,500,000 shares authorized, 37,239,493 and 38,078,790 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			2,978				3,046
Additional paid-in capital			272,069				275,453
Accumulated other comprehensive income			4,810				3,333
Retained earnings (deficit)			(227,132	)			(372,969	)
Total shareholders’ equity (deficit) of Primus Guaranty, Ltd			52,725				(91,137	)
Preferred securities of subsidiary			90,146				93,102
Total equity			142,871				1,965
Total liabilities and equity		$	611,356			$	634,859

See accompanying notes.

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except per share amounts)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Revenues
Net credit swap revenue (loss)		$	61,009			$	(189,708	)		$	147,107			$	(102,178	)
Interest income			2,569				3,541				5,180				6,240
Gain on retirement of long-term debt			—				2,676				2,760				7,433
Other income (loss)			321				(51	)			618				132
Total revenues			63,899				(183,542	)			155,665				(88,373	)
Expenses
Compensation and employee benefits			1,570				4,546				3,692				9,126
Professional and legal fees			674				2,178				1,496				3,663
Interest expense			1,546				1,737				3,113				3,606
Other			1,077				1,777				2,393				3,500
Total expenses			4,867				10,238				10,694				19,895
Income (loss) from continuing operations before provision (benefit) for income taxes			59,032				(193,780	)			144,971				(108,268	)
Provision (benefit) for income taxes			1				(113	)			11				27
Income (loss) from continuing operations, net of tax			59,031				(193,667	)			144,960				(108,295	)
Income (loss) from discontinued operations, net of tax			2,808				(119,937	)			2,538				(28,386	)
Net income (loss)			61,839				(313,604	)			147,498				(136,681	)
Less:
Distributions on preferred securities of subsidiary			702				724				1,661				1,712
Net loss from discontinued operations attributable to non-parent interests in CLOs			—				(125,934	)			—				(36,521	)
Net income (loss) available to common shares		$	61,137			$	(188,394	)		$	145,837			$	(101,872	)
Income (loss) per common share:
Basic:
Income (loss) from continuing operations		$	1.55			$	(5.00	)		$	3.78			$	(2.84	)
Income (loss) from discontinued operations		$	0.08			$	0.16			$	0.07			$	0.21
Net income (loss) available to common shares		$	1.63			$	(4.84	)		$	3.85			$	(2.63	)
Diluted:
Income (loss) from continuing operations		$	1.55			$	(5.00	)		$	3.76			$	(2.84	)
Income (loss) from discontinued operations		$	0.07			$	0.16			$	0.07			$	0.21
Net income (loss) available to common shares		$	1.62			$	(4.84	)		$	3.83			$	(2.63	)
Weighted average common shares outstanding:
Basic			37,638				38,903				37,881				38,795
Diluted			37,837				38,903				38,124				38,795

See accompanying notes.

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

		Six Months Ended
		June 30,
		2011				2010
Cash flows from operating activities
Net income (loss) available to common shares		$	145,837			$	(101,872	)
Net loss attributable to non-parent interests in CLOs			—				(36,521	)
Distributions on preferred securities of subsidiary			1,661				1,712
Net income (loss)			147,498				(136,681	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Non-cash items included in net income (loss):
Net unrealized losses on CLO loans and securities			—				6,366
Net unrealized losses on CLO notes			—				92,558
Net realized gains by the CLOs			—				(42,580	)
Net unrealized (gains) losses on credit swaps			(140,190	)			67,712
Gain on retirement of long-term debt			(2,760	)			(7,433	)
Other			3,019				2,336
Increase (decrease) in cash resulting from changes in:
CLO cash and cash equivalents			—				(25,219	)
CLO other assets			—				(16,261	)
CLO other liabilities			—				46,444
Proceeds from sale of CLO loans and securities			—				525,125
Purchases of CLO loans and securities			—				(514,785	)
Restricted cash			(2,010	)			(1,992	)
Accrued interest and premiums			228				(652	)
Other assets			3,654				(446	)
Trading account assets			—				(53,346	)
Accounts payable and accrued expenses			(3,405	)			(3,260	)
Payable for credit events			(916	)			(23,964	)
Restructuring liabilities			(3,668	)			—
Other liabilities			(1,510	)			24,680
Net cash used in operating activities			(60	)			(61,398	)
Cash flows from investing activities
Purchases of available-for-sale investments			(225,063	)			(122,569	)
Maturities and sales of available-for-sale investments			180,663				77,021
Payments received from CLO investments			1,362				—
Purchases of fixed assets			(6	)			(23	)
Net cash used in investing activities			(43,044	)			(45,571	)
Cash flows from financing activities
Repayment of CLO notes by the CLOs			—				(35,127	)
Retirement of long-term debt			(9,069	)			(12,500	)
Purchase and retirement of common shares			(6,511	)			(3,269	)
Purchase of preferred securities of subsidiary			(1,875	)			—
Net preferred distributions of subsidiary			(1,661	)			(1,712	)
Net cash used in financing activities			(19,116	)			(52,608	)
Net effect of exchange rate changes on cash			—				(74	)
Net increase (decrease) in cash			(62,220	)			(159,651	)
Cash and cash equivalents at beginning of period			177,736				299,514
Cash and cash equivalents at end of period		$	115,516			$	139,863
Supplemental disclosures of cash flow information:
Cash paid for interest		$	3,161			$	3,679
Cash paid for taxes		$	—			$	41

See accompanying notes.

Primus Guaranty, Ltd.

Condensed Consolidated Statements of Equity (Unaudited)

(in thousands)

		Six Months Ended				Year Ended
		June 30, 2011				December 31, 2010
Common shares
Balance at beginning of period		$	3,046			$	3,061
Common shares purchased and retired			(98	)			(166	)
Shares issued under employee compensation plans			30				151
Balance at end of period			2,978				3,046
Additional paid-in capital
Balance at beginning of period			275,453				280,685
Common shares purchased and retired			(6,443	)			(13,135	)
Shares vested under employee compensation plans			1,978				7,903
Preferred shares purchased by subsidiary			1,081				—
Balance at end of period			272,069				275,453
Accumulated other comprehensive income (loss)
Balance at beginning of period			3,333				2,148
Foreign currency translation adjustments			—				30
Change in unrealized holding gains on available-for-sale securities			1,477				1,155
Balance at end of period			4,810				3,333
Retained earnings (deficit)
Balance at beginning of period			(372,969	)			(628,443	)
Net income			147,498				197,462
Net loss attributable to non-parent interests in CLOs			—				61,174
Distributions on preferred securities of subsidiary			(1,661	)			(3,162	)
Balance at end of period			(227,132	)			(372,969	)
Appropriated retained earnings from CLO consolidation
Adoption of ASC Topic 810, Consolidation			—				265,639
Net loss attributable to non-parent interests in CLOs			—				(61,174	)
Deconsolidation of CLOs			—				(204,465	)
Balance at end of period			—				—
Total shareholders’ equity (deficit) of Primus Guaranty, Ltd.			52,725				(91,137	)
Preferred securities of subsidiary
Balance at beginning of period			93,102				93,102
Net purchase of preferred shares			(2,956	)			—
Balance at end of period			90,146				93,102
Total equity at end of period		$	142,871			$	1,965

See accompanying notes.

Primus Guaranty, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization and Business

In these notes, the terms “Primus Guaranty” and “the Company” refer to Primus Guaranty, Ltd., a Bermuda company, collectively with its subsidiaries; “Primus Financial” refers to Primus Financial Products, LLC, a Delaware limited liability company, collectively with its subsidiaries, and “Primus Asset Management” refers to Primus Asset Management, Inc., a Delaware corporation. Primus Financial and Primus Asset Management are subsidiaries of Primus Guaranty, Ltd.

Primus Financial was established to sell credit protection in the form of credit swaps to global financial institutions and major credit swap dealers against primarily investment grade credit obligations of corporate and sovereign issuers.

During 2009, the Company announced its intention to amortize Primus Financial’s credit swap portfolio. It is expected that Primus Financial’s existing credit swap contracts will expire at maturity unless terminated early through credit events or credit risk mitigation transactions. It is not expected that additional credit swaps will be added to Primus Financial’s portfolio.

Primus Asset Management acts as manager of the credit swap and investment portfolios of Primus Financial. Primus Asset Management has entered into a Services Agreement with its affiliates, whereby it provides management, consulting, information technology and other services.

On December 1, 2010, the Company divested its collateralized loan obligation (“CLO”) asset management business, which included the sale of CypressTree Investment Management, LLC (“CypressTree”).

See note 7 of these notes to condensed consolidated financial statements for further discussion on Discontinued Operations.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Primus Guaranty have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and the use of estimates) considered necessary for a fair presentation pursuant to these requirements have been included. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The results of operations for any interim period are not necessarily indicative of the results for a full year.

The condensed consolidated financial statements are presented in U.S. dollar equivalents. During the periods presented, the Company’s credit swap activities were conducted by Primus Financial in U.S. dollars and euros.

Certain prior year amounts have been reclassified to conform to current year presentation. There was no effect on net income available to common shares as a result of these reclassifications.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest, including CLOs under management during 2010, for which Primus Guaranty was deemed to be the primary beneficiary. All significant intercompany balances have been eliminated.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements . ASU No. 2010-06 provides amended disclosure requirements related to fair value measurements, including transfers in and out of Levels 1 and 2 and activity in Level 3 under the fair value hierarchy. ASU No. 2010-06 is effective for financial statements issued for reporting periods beginning after December 15, 2009 for certain disclosures and for reporting periods beginning after December 15, 2010 for certain additional disclosures regarding activity in Level 3 fair value measurements. Since these amended principles require only additional disclosures concerning fair value measurements, adoption of ASU No. 2010-06 did not affect the Company’s financial condition, results of operations or cash flows.

In May 2011, the FASB issued ASU 2011-04, which amends the measurement and disclosure requirements for fair value. The guidance is effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the impact of this guidance.

In June 2011, the FASB issued ASU 2011-05, which will require additional disclosure with respect to other comprehensive income. The guidance is effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the impact of this guidance.

3. Investments

The following tables summarize the composition of the Company’s available-for-sale and held-to-maturity investments at June 30, 2011 and December 31, 2010 (in thousands):

		June 30, 2011
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
Available-for-sale:
Corporate debt securities		$	323,540			$	4,639			$	(61	)		$	328,118
Asset-backed securities			1,120				251				(18	)			1,353
Total available-for-sale			324,660				4,890				(79	)			329,471
Held-to-maturity:
Certificate of deposit			171				—				—				171
Total held-to-maturity			171				—				—				171
Total investments		$	324,831			$	4,890			$	(79	)		$	329,642
		December 31, 2010
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
Available-for-sale:
Corporate debt securities		$	284,090			$	3,378			$	(311	)		$	287,157
Asset-backed securities			1,392				266				—				1,658
Total available-for-sale			285,482				3,644				(311	)			288,815
Held-to-maturity:
Certificate of deposit			170				—				—				170
Total held-to-maturity			170				—				—				170
Total investments		$	285,652			$	3,644			$	(311	)		$	288,985

As of June 30, 2011, all of the corporate debt securities will mature before December 2014. The asset-backed securities are estimated to mature between 2012 and 2033, although the actual maturity may be sooner. As of December 31, 2010, all of the corporate debt securities will mature before December 2014. The asset-backed securities were estimated to mature between 2011 and 2034.

As of June 30, 2011, the Company held an estimated fair value $6.4 million of investments in securities issued by CLOs, which were classified as trading investments.

The tables below summarize the fair value of available-for-sale investments that have been in a continuous unrealized loss position for less than 12 months and for 12 months or more at June 30, 2011 and December 31, 2010 (in thousands).

		June 30, 2011
		Securities with Unrealized Losses
		Less than 12 Months								12 Months or More								Total
						Gross								Gross								Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Corporate debt securities		$	41,963			$	(61	)		$	—			$	—			$	41,963			$	(61	)
Asset-backed securities			129				(18	)			—				—				129				(18	)
Total		$	42,092			$	(79	)		$	—			$	—			$	42,092			$	(79	)
		December 31, 2010
		Securities with Unrealized Losses
		Less than 12 Months								12 Months or More								Total
						Gross								Gross								Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Corporate debt securities		$	78,053			$	(311	)		$	—			$	—			$	78,053			$	(311	)
Total		$	78,053			$	(311	)		$	—			$	—			$	78,053			$	(311	)

The Company makes an assessment to determine whether unrealized losses reflect declines in value of securities that are other-than-temporarily impaired. The Company considers many factors, including the length of time and significance of the decline in fair value of the investment; the intent to sell the investment or if it is more likely than not it will be required to sell the investment before recovery in fair value; recent events specific to the issuer or industry; credit ratings and asset quality of collateral structure; and any significant changes in estimated cash flows of the investment. If the Company, based on its evaluation, determines that the credit related impairment is other-than-temporary, the carrying value of the security is written down to fair value and the unrealized loss is recognized through a charge to earnings in the condensed consolidated statements of operations.

During the three and six months ended June 30, 2011 and 2010, it was determined that there were no credit related, other than temporary, impairment losses on investments.

4. Restricted Cash and Investments

Restricted cash represents amounts held by a counterparty as security for credit swap contracts. Restricted investments are comprised of a held-to-maturity corporate note issued by a counterparty as security for credit swap contracts, which is scheduled to mature in March 2013. The carrying value of the held-to-maturity corporate note was $38.4 million and $37.8 million at June 30, 2011 and December 31, 2010, respectively. The amortized cost of the held-to-maturity corporate note approximates fair value. As of June 30, 2011 and December 31, 2010, the Company’s consolidated financial statements include $135.1 million and $138.5 million, respectively, of restricted cash and investments.

5. Credit Swaps

Net Credit Swap Revenue (Loss)

Net credit swap revenue (loss) as presented in the condensed consolidated statements of operations is comprised of changes in the fair value of credit swaps, realized gains or losses on the termination of credit swaps before their stated maturity, realized losses on credit events and premium income or expense. The realization of gains or losses on the termination of credit swaps or credit events generally will result in a reduction in unrealized gains or losses and accrued premium at the point in time realization occurs.

Credit swaps sold by Primus Financial on a single corporate or sovereign issuer, specified as a Reference Entity, are referred to as “single name credit swaps.” Primus Financial also has sold credit swaps referencing portfolios containing obligations of multiple Reference Entities, which are referred to as “tranches.” Additionally, Primus Financial has sold credit swaps on asset-backed securities, which are referred to as “CDS on ABS.” These asset-backed securities reference residential mortgage-backed securities.

The table below presents the components of net credit swap revenue (loss) for the three and six months ended June 30, 2011 and 2010 (in thousands).

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net premiums earned		$	10,224			$	15,234			$	21,395			$	31,670
Net realized losses on credit swaps			(6,667	)			(10,094	)			(14,478	)			(66,136	)
Net unrealized gains (losses) on credit swaps			57,452				(194,848	)			140,190				(67,712	)
Net credit swap revenue (loss)		$	61,009			$	(189,708	)		$	147,107			$	(102,178	)

Net realized losses in the table above include gains and losses on terminated credit swaps and losses on credit events.

Credit Events and Terminations of Credit Swaps

The following table presents the components of net realized losses recorded by Primus Financial related to risk mitigation transactions, terminations of credit swaps and credit events for the three and six months ended June 30, 2011 and 2010 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net realized losses on single name credit swaps		$	(652	)		$	(10,011	)		$	(605	)		$	(29,234	)
Net realized losses on tranches			(4,032	)			(83	)			(4,032	)			(35,083	)
Net realized losses on CDS on ABS			(1,983	)			—				(9,841	)			(1,819	)
Total net realized losses		$	(6,667	)		$	(10,094	)		$	(14, 478	)		$	(66,136	)

Net realized losses on credit swaps were $6.7 million and $10.1 million for the three months ended June 30, 2011 and 2010, respectively. Net realized losses for the three months ended June 30, 2011 consisted of a $2.0 million payment in connection with the settlement of a credit event on CDS on ABS and $4.7 million in payments to terminate or amend swap transactions to reduce exposure to one mortgage insurer. Net realized losses for the three months ended June 30, 2010 primarily comprised payments to terminate single name credit swaps referencing two financial guaranty (monoline) companies.

Net realized losses on credit swaps were $14.5 million and $66.1 million for the six months ended June 30, 2011 and 2010, respectively. Net realized losses for the six months ended June 30, 2011 primarily comprised payments to settle credit events on CDS on ABS and payments to terminate or amend swap transactions to reduce exposure to one mortgage insurer. Net realized losses for the six months ended June 30, 2010 primarily comprised payments to terminate single name credit swaps referencing two financial guaranty (monoline) companies and a payment to a bank counterparty relating to the termination of three tranche transactions.

Credit Swap Portfolio Information

The tables below summarize, by Standard & Poor’s Ratings Services (“S&P”) credit rating of Reference Entities and of counterparties, the notional amounts and unrealized gain or loss for fair values of credit swap transactions outstanding as of June 30, 2011 and December 31, 2010 (in thousands). Ratings for tranche transactions have been estimated using ratings models available to the Company. If a Reference Entity is not rated by S&P, an equivalent credit rating is obtained from another Nationally Recognized Statistical Rating Organization, if available.

		June 30, 2011								December 31, 2010
		Notional				Fair				Notional				Fair
Rating Category		Amount				Value				Amount				Value
By Single Name Reference Entity/Tranche
Credit Swaps Sold-Single Name:
AAA		$	58,506			$	(107	)		$	55,143			$	(144	)
AA			1,025,080				(3,137	)			1,137,217				(8,776	)
A			2,174,248				(1,171	)			2,831,049				(8,407	)
BBB			1,589,383				975				1,946,885				(1,094	)
BB			254,522				(763	)			231,167				(359	)
B			37,251				(149	)			66,691				(886	)
CCC			—				—				40,000				(638	)
Non rated			339,434				(31,179	)			302,819				(57,286	)
Total		$	5,478,424			$	(35,531	)		$	6,610,971			$	(77,590	)
Credit Swaps Sold-Tranche:
AAA		$	2,650,000			$	(107,319	)		$	2,650,000			$	(168,627	)
AA			200,000				(9,884	)			450,000				(49,035	)
A			300,000				(23,091	)			300,000				(30,390	)
BBB			550,000				(45,661	)			300,000				(22,193	)
BB			50,000				(3,217	)			50,000				(5,175	)
Non rated			43,317				(16,801	)			43,317				(19,373	)
Total		$	3,793,317			$	(205,973	)		$	3,793,317			$	(294,793	)
CDS on ABS:
BBB		$	577			$	(327	)		$	736			$	(358	)
CCC			10,000				(8,327	)			18,000				(15,794	)
CC			3,000				(2,809	)			5,000				(4,683	)
Total		$	13,577			$	(11,463	)		$	23,736			$	(20,835	)
Credit Swaps Purchased-Single Name:
A		$	—			$	—			$	(4,120	)		$	60
Total		$	—			$	—			$	(4,120	)		$	60

The table below shows the rating category of the credit swap portfolio by counterparty, as of June 30, 2011 and December 31, 2010 (in thousands).

		June 30, 2011								December 31, 2010
		Notional				Fair				Notional				Fair
Rating Category		Amount				Value				Amount				Value
By Counterparty Buyer / (Seller)
Credit Swaps Sold-Single Name:
AA		$	1,299,136			$	(1,812	)		$	1,675,212			$	(5,970	)
A			4,179,288				(33,719	)			4,935,759				(71,620	)
Total		$	5,478,424			$	(35,531	)		$	6,610,971			$	(77,590	)
Credit Swaps Sold-Tranche:
AA		$	2,293,317			$	(137,858	)		$	1,843,317			$	(147,723	)
A			1,500,000				(68,115	)			1,500,000				(98,034	)
BBB			—				—				450,000				(49,036	)
Total		$	3,793,317			$	(205,973	)		$	3,793,317			$	(294,793	)
CDS on ABS:
A		$	13,577			$	(11,463	)		$	23,736			$	(20,835	)
Total		$	13,577			$	(11,463	)		$	23,736			$	(20,835	)
Credit Swaps Purchased-Single Name:
A		$	—			$	—			$	(4,120	)		$	60
Total		$	—			$	—			$	(4,120	)		$	60

The table below shows the geographical distribution of the credit swap portfolio by domicile of the Reference Entity and domicile of the counterparty, as of June 30, 2011 and December 31, 2010 (in thousands).

		June 30, 2011							December 31, 2010
		Notional				Fair				Notional				Fair
Domicile		Amount				Value				Amount				Value
Credit Swaps Sold-Single Name
By Reference Entity:
North America		$	1,797,263			$	(29,262	)		$	2,429,477			$	(57,512	)
Europe			3,414,161				(4,943	)			3,834,494				(17,814	)
Asia-Pacific			237,000				(1,352	)			317,000				(2,065	)
Others			30,000				26				30,000				(199	)
Total		$	5,478,424			$	(35,531	)		$	6,610,971			$	(77,590	)
By Counterparty:
North America		$	2,065,088			$	(2,981	)		$	2,649,509			$	(13,665	)
Europe			3,386,336				(32,388	)			3,924,462				(63,603	)
Asia-Pacific			27,000				(162	)			37,000				(322	)
Total		$	5,478,424			$	(35,531	)		$	6,610,971			$	(77,590	)
Credit Swaps Sold-Tranche
By Counterparty:
North America		$	600,000			$	(18,870	)		$	600,000			$	(31,442	)
Europe			3,193,317				(187,103	)			3,193,317				(263,351	)
Total		$	3,793,317			$	(205,973	)		$	3,793,317			$	(294,793	)
CDS on ABS
By Reference Entity:
North America		$	13,577			$	(11,463	)		$	23,736			$	(20,835	)
Total		$	13,577			$	(11,463	)		$	23,736			$	(20,835	)
By Counterparty:
North America		$	3,577			$	(3,136	)		$	13,736			$	(12,038	)
Europe			10,000				(8,327	)			10,000				(8,797	)
Total		$	13,577			$	(11,463	)		$	23,736			$	(20,835	)
Credit Swaps Purchased-Single Name
By Reference Entity:
North America		$	—			$	—			$	(4,120	)		$	60
Total		$	—			$	—			$	(4,120	)		$	60
By Counterparty:
Europe		$	—			$	—			$	(4,120	)		$	60
Total		$	—			$	—			$	(4,120	)		$	60

The table below shows the distribution of the credit swap portfolio, by year of maturity as of June 30, 2011 and December 31, 2010 (in thousands). With respect to the CDS on ABS caption below, the maturity dates presented are estimated maturities; the actual maturity date for any contract will vary depending on the level of voluntary prepayments, defaults and interest rates with respect to the underlying mortgage loans. As a result, the actual maturity date for any such contract may be earlier or later than the estimated maturity indicated.

		June 30, 2011								December 31, 2010
		Notional				Fair				Notional				Fair
		Amount				Value				Amount				Value
Credit Swaps Sold-Single Name
Year of Maturity
2011		$	895,299			$	(30,679	)		$	2,261,170			$	(57,836	)
2012			3,837,527				(7,200	)			3,659,132				(22,212	)
2013			745,598				2,348				690,669				2,458
Total		$	5,478,424			$	(35,531	)		$	6,610,971			$	(77,590	)
Credit Swaps Sold-Tranche
Year of Maturity
2012		$	375,000			$	(1,686	)		$	375,000			$	(5,117	)
2013			93,317				(20,018	)			93,317				(24,548	)
2014			3,325,000				(184,269	)			3,325,000				(265,128	)
Total		$	3,793,317			$	(205,973	)		$	3,793,317			$	(294,793	)
CDS on ABS
Estimated Year of Maturity
2011		$	—			$	—			$	18,000			$	(16,000	)
2012			8,000				(6,971	)			5,000				(4,477	)
2015			5,000				(4,165	)			—				—
2020			—				—				736				(358	)
2023			577				(327	)			—				—
Total		$	13,577			$	(11,463	)		$	23,736			$	(20,835	)
Credit Swaps Purchased-Single Name
Year of Maturity
2014		$	—			$	—			$	(4,120	)		$	60
Total		$	—			$	—			$	(4,120	)		$	60