Primus Guaranty Limited Q4 2008 Earnings Call Transcript

| About: Primus Guaranty, (PRSG)

Primus Guaranty Ltd. (PRS) Q4 2008 Earnings Call February 4, 2009 11:00 AM ET


Richard Claiden - Chief Financial Officer

Tom Jasper - Chief Executive Officer

Chris Gerosa - Corporate Treasurer

Nicole Stansell - Investor Relations


Martin Ji - ClearBridge Advisors


Good day ladies and gentlemen and welcome to the fourth quarter 2008 Primus Guaranty Ltd. Earnings Conference Call. My name is Kamesha and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I’d now like to turn the call over to your host for today’s conference, Mr. Richard Claiden, Chief Financial Officer.

Richard Claiden

Thank you, good morning ladies and gentlemen and welcome to our quarterly earnings call. I am Richard Claiden, Chief Financial Officer for Primus Guaranty and with me are Tom Jasper, Chief Executive Officer; Chris Gerosa, our Treasurer; and Nicole Stansell our Investor Relations Officer.

In contrast to last quarters call, I will open the call and give an overview of the events of 2008 and how they affected Primus and then review our financial results for the fourth quarter. Tom, will follow you with the discussion of the structure credit market and provide an update on Primus 2009 outlook and business priorities. We will then open up the call for your questions after we prepare our completed remarks.

Before I continue, I should caution you that some of the statements we may make in this call, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters are forward-looking statements that involve a number of assumptions, risks and uncertainties which change overtime.

We assume no duty to update any forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements and our future results could differ materially from historical performance. For a discussion of the factors that could affect our results please refer to the risk factors identified in our filings with the SEC.

In discussing our financial results, I’ll refer to both the earnings release and supplementary information package, which were both published earlier today and contain reconciliation from GAAP to economic results. I will discuss both our economic results and our GAAP results for the quarter.

Now looking at 2008, as you’re all aware 2008 was an exceptionally difficult year to the markets closing, it was also a very challenging year for Primus. More specifically, we face issues in three key areas of our business.

First, the counterparty capacity which constrained our ability to grow our credit swap portfolio after the first quarter; secondly, credit events on reference entities against we’ve create written protection which necessitated significant payments to counterparties; and finally, downgrades in Primus Financial and Primus Guaranty’s credit ratings.

Let’s look at each of these in more detail, beginning with counterparty capacity. We began the year strongly, selling $1.2 billion our new credit swap protection in the first quarter. However, following the collapse of Bear Stearns in mid-March we saw counterparty capacity dry-up. This meant that we were only able to sell minimal amounts of new credit protection in subsequent quarters.

At the end of the third quarter, we told you that we thought the lack of counterparty capacity was likely to continue and that we would shift our focus to managing Primus Financial’s portfolio in an amortization mode. Tom, will speak to this in more detail in a few moments.

Turning next to credit events; during September and October of 2008, we saw a significant deterioration in the financial sector, which resulted in a number of credit events. Six of these credit events impacted Primus Financial. These credit events resulted in net realized losses of $145.7 million, of which $134 million related just to Reference Entities, Lehman Brothers and Kaupthing Bank. The credit events also reduced Primus credit swap portfolio by $346 million in notional amount as the related swaps were terminated.

In addition to realized losses on our single name Reference Entities, Primus Financial also incurred cost of $4.8 million through credit mitigation activity and made provisions against our economic results $9.3 million, resulting from credit events in the CDS of ABS portfolio.

In summary, the total net credit event and credit mitigation cost recorded in our 2008 economic results was a $159.8 million, compared with cost of $44.7 million in our 2007 economic results.

The third area I’d like to touch upon is Primus’s credit ratings. During the fourth quarter, a combination of Reference Entity downgrades and credit events in the portfolio that downgrades of Primus Financial’s AAA rating to A +, A1. As we’ve said before, a decline in Primus Financial’s rating does not trigger credit events, nor require collateral postings nor commit a counterparty to terminate it’s the credit swap transactions with Primus Financial.

We conducted a review of our business and determine not to add any additional capital to support the Primus Financial business. We believe that the current level of capital is appropriate given the amortization approach we are taking. Primus Guaranty was also downgraded during the fourth quarter to CCC by S&P and BA3 by Moody’s.

We did see a number of downgrades amongst the reference entities in our credit swap portfolio. However, the average rating which was A on the S&P scale remained constant and Baa and Baa2 on the Moody’s scale, which fell by one last during the quarter. We did see an increase in the proportion of the portfolio with some investment grade ratings. At the end of 2007, 7% of the single-name portfolio at some investment grade rating compared with approximately 3% at the end of 2007. This change was primarily driven by reference entity downgrades.

Both credit events and credit ratings downgrades were clearly difficult issues for us during 2008, there had been a few rays of sunlight amidst the clouds. As you know Primus Financial has about $500 million exposure to monolines. Its very good news that the monolines are making good progress with their restructuring efforts, either reinsuring their exposures or commuting transactions, we hope these efforts continue.

In addition government and central banks around the world have in recent months announced the range of initiatives to increase liquidity and capital, and strengthen confidence in the financial system. Financial institutions are the largest single industry exposure we have in the Primus Financial portfolio, so this too is potentially good news.

Given the events of 2008, it seems reasonable to ask, can Primus continue to navigate the volatility and turmoil that marked the financial and credit markets and if so, how? Well, this is precisely what Tom is going to address and I don’t want to steal his thunder. So let me say this, over the past five to six years we’ve developed our operating platform at significant experience in analyzing and managing credit assets. We believe that there is value in our platform and we believe there is value in credit in the Primus Financial portfolio.

Now, let me turn to the financial results for the fourth quarter of 2008. Economic results for the quarter were a net loss of $60.2 million; these results include credit losses to $74.3 million, a write-down of $11.9 million in the equity one of the CLO’s we managed and a $9.7 million gain from the retirement of Primus Guaranty debt.

Primus Financial did not write any lease credit swap transactions during the quarter. At the end of the quarter, the portfolio totaled $22.5 billion down from $22.9 billion at the end of the third quarter of 2008. The reduction in notional, during the fourth quarter was caused by four factors. First the maturities of $167 million; secondly, the termination of credit swaps due to credit events is $65 million; thirdly, credit mitigation terminations of $25 million; and lastly a fall in the value of the euro which reduced our notional by a $109 million.

Premium income for the quarter was $23.6 million compared with $23.7 million for the fourth quarter of 2007. The decrease in premium is attributable to the law and notional principle amount in the portfolio in the fourth quarter of 2008. The notional size of the portfolio at year end includes $1.4 billion in credit swap transactions with Lehman Brothers special financing and counterparty just files for bankruptcy.

However, given the states of the counterparty, we do not envisage paying claims on credit events in this portfolio while this counterparty remains in default. Additionally, we do not reflect any premiums on those swaps in our premium income from the quarter.

Our interest income for the fourth quarter of 2008 was $4.9 million compared with $10.7 million for the fourth quarter of 2007. The decline in interest income is primarily due to lower interest rates during 2008. The average rate found in our investment portfolio was 2.4% in the fourth quarter of 2008, compared with 5% in the fourth quarter of 2007. Interest expense on debt and distributions of preferred securities were $5.7 million in the fourth quarter of 2008, compared with $7.7 million in the same quarter of 2007.

The reduction in expense was primarily a result of lower market interest rates during 2008. The average effective interest rate on the debt and preferred securities was 5.46% for the fourth quarter of 2008, compared with 7.25% for the fourth quarter of 2007. The weighted average spread over one month liable on the Primus Financial’s $300 million of debt and preferred securities in the auction market is currently 308 basis points.

Asset management fees, which we collect for managing two CLOs and three CSOs declined to $776,000 to $1.1 million in the fourth quarter of 2007. The decline reflects the fact that CLO I experienced a revenue short fall during the fourth quarter of 2008, so that the full fee amount was not paid to us. These fees maybe recouped later depending on the performance of CLO I. Fees for CLO II remained at their normal run rate.

During the fourth quarter of 2008 the company performed an impairment analysis and determined that its invested in the subordinated debt of CLOs it manages have become impaired and as a result recorded a charge of $11.9 million in both GAAP and economic results.

Operating expenses for the quarter was $7.1 million compared with $10 million in the same quarter of 2007. Fourth quarter 2007; operating expense excludes the restructuring charge of $3 million we took in that period. The primary reason for the lower expense in the fourth quarter of 2008 was a significant reduction in headcount by nine people or about 15% and other expense reduction initiatives. Our current normalized operating expenses are approximately $26 million per year or $6.5 million a quarter, compared with $31 million for 2008 and $43 million in 2007.

Let me now spend some time prepare providing more details relating to the credit event losses during the fourth quarter of 2008. The principal credit event in the quarter on a notion of $68.2 million on Kaupthing Bank in Iceland, after it recovers the net cost of the credit event was $61.3 million. In addition to Kaupthing, Primus Financial suffered a credit event on $10 million in notional of CDS of ABS, which was triggered by downgrade in the underlying asset-backed security below a rating of C882. This resulted in us making $8.6 million provision in economic results.

As previously disclosed, this provision is our expected loss, but does not suggest that the cash was being paid to the counterparty. In addition, we terminated a previously defaulted CDS as the counterparty delivered the bonds to Primus Financial and accordingly we recorded an additional loss of $500,000 million in economic results in the fourth quarter.

Turning to our GAAP results, we have a net loss of $918.5 million for the fourth quarter of 2008 compared with the loss of $403.9 million for the fourth quarter of 2007. The principal component of the loss in the fourth quarter of 2008 was a mark-to-market loss of $859.7 million in Primus Financial’s credit swaps portfolio. This mark-to-market loss is after a favorable adjustment of $537.6 million to reflect the risk of our own nonperformance as required by FAS 157, which we implemented in 2008.

While we appreciate, this is largest GAAP loss we taken in a quarter. It’s important to keep in mind a few points. First, credit swap contracts will revert to zero mark-to-market in our maturity. This means we will get a significant mark-to-market benefit as the average life of the portfolio shortens. It also means that the company is likely to show positive GAAP results, once the credit markets stabilize and as I say the portfolio amortizes to maturity.

Additionally because Primus Financial is not required to post collateral, counter parties have no right to terminate our credit swaps, even though our mark-to-market may have deteriorated.

Looking at our balance sheet, we have $763.8 million of cash and investments on a consolidated basis at December 31, 2008. Of this amount approximately $687 million was held at Primus Financial. As you know, Primus Financial receives premiums from major banks and credit swap dealers on its portfolio of credit swaps

Based on an assumption, the swaps are held to full maturity, we would anticipate Primus Financial receiving over $280 million in cash in the future, based upon the portfolio of credit swaps written at December 31, 2008. These future premium cash flows exclude transactions with Lehman Brothers Special Financing. Of course, future cash flows will be potentially affected by any further credit events and changes in the value of the euro.

During the fourth quarter, we commenced the buyback of notes issued by Primus Guaranty. As of December 31, 2008 we have purchased approximately 611,000 of Primus Guaranty notes at an average price of $8.28 and a total cost of $5.1 million. This enabled us to retire $5.3 million of face value of debt at a net interest saving of approximately $1.1 million per annum. The returned of the debt at the low par value, resulted in a gain of $9.7 million in the quarter.

We’ve also initiated a share repurchase program during the fourth quarter. As of December 31, 2008 we’ve spend approximately $3.3 million to purchase and retire $4.5 million Primus Guaranty common shares at an average price of $0.73 per share. The share repurchase program as reduced out standing share account by 10%. We continue to have capacity under our previous $25 million repurchase limit to repurchase both Primus Guaranty shares and bonds.

So, to summarize this was a difficult quarter for the market as a whole and also for our company. As a result of the ground changing events in the financial markets, we are evolving our strategy as Tom will now discuss.

Tom Jasper

Thanks Richard. Good morning to everybody and thank you very much for joining our call. I’m going to step back from talking about quarterly performance as Richard mentioned, to focus more broadly on our outlook and priorities for 2009. I’ll start by discussing how we view the current environment and the implications this has had for our business. I’ll then outline key business priorities for the year in terms of our credit protection and asset management businesses, capital deployment and expense management, following that we’ll open the call up to questions.

To begin it’s no surprise that the economic environment continues to be very challenging. The financial markets remain volatile and in general market activities severely constrain. The credit markets are of course at the center of the storm, liquidity in many areas is low, new issue volumes across the credit markets are down and lending has decreased. Confidence, which to me is the hum around which the credit markets activity rotates, is still very low.

Obviously, the government is doing what it can to boost confidence and inject liquidity into the market and we weight the Obama administration stimulus plan. We hope and believe at some point that these efforts will in fact prove effective. Regardless of whatever they do over the next two to three years, it seems clear to me that the road ahead particularly in 2009 will be bumpy and that maybe an under statement.

We expect to see further deterioration at corporate balance sheet resulting in ratings downgrades and potentially a marked increased in defaults. Additionally, we anticipate further write-downs of credit assets within the global banking community although the recent moves by global central banks, at the very least establish that the markets cannot observe the failure of the major bank.

We expect to see further steps by G7 governments to free-up capacity within bank balance sheet to encourage growth and lending. Many observers expect to see additional consolidation amongst financial institutions, including both banks and more importantly to us credit swap dealers and with these combinations further risk capacity will be taken out of the market.

There is another trend that is emerging, one that more specifically affects our business. As you know there has been considerable coverage of the impact CDS that credit swaps had on the financial crisis and on the health of some finance institution. In our mind these views reflects some fundamental misperception. For one, credit default swaps do not create exposure they transfer existing exposure from one counterparty to another.

Another key misperception is that CDS exposures are creating a serious overhang over the financial markets. If however, you look at industry data compiled by Depository Trust & Clearing Corporation a different picture emerges. In addition, as the settlement at the Lehman CDS credit event proved, fears about the huge exposures and payouts associated with this bankruptcy, were grossly overblown at least in the context of worries that a large CDS counterparty default could result in a systemic failure. Whether Lehman should have been allowed to fail, is another question altogether.

Obviously, the credit swap industry needs to do a better job communicating these and other facts, particularly in the light of increasing attention global policymakers are paying to the business. Legislation for example, was recently introduced in Washington to regulate the business. Many industry participants view this drop fell as nothing more than the opening salvo in a long debate. At this point, it’s fair to say that there were likely be new regulations at the CDS business and possibly the entire privately negotiated derivatives business.

It is difficult to predict at this stage, exactly how this regulation will be drafted into law and which regulatory organizations will be sign the industry oversight roll and more specifically, it is difficult to predict what impact it could potentially have on Primus.

There are, as you may know several competing proposals to establish clearing houses for credit default swap. Its my understanding that at least one is actually up and operating, though it’s not clear what if any volume of business, it has attractive. In fact, it remains we seen if any of the proposed clearing houses, will become commercially viable, absent a regulatory requirement, which I believe is unlikely that CDS market participants clear all their transactions through with them.

It also remains to be seen, what types of trades will be cleared through the clearing houses? How they will be capitalized and which firms will permitted to join them? Despite the current uncertainties in the market, I’m actually bullish about the prospects for continued growth and innovation in the credit swap arena. I and many market participants believe credit swap activity will remain robust even in 2009.

The need for firms of all stripes and hedge risk and the power of firms to trade credit as an asset class means to me that credit swap trading volumes will likely remain high all be it at levels below their peaks. At the same time, although we will probably see a return to simplicity in terms of credit swap structures and business models, certainly with less leverage.

We also expect that many market participants will narrow and sharpen their strategic focus. This means that there is likely to be more consolidation in the credit markets beyond banks as firm shed businesses, but they do not have the scale, scope, expertise or capital to operate properly and profitably.

So, what does all of this mean for Primus? It’s clear in this new environment that we need to fine tune our strategy and businesses. Our management team in consultation with our board has been hard at work on this over the last several months. We have carefully reviewed our strengths, weaknesses, opportunities and challenges in order to fashion a business plan that focuses on optimizing value to shareholder.

Our plan has four key elements. First, it’s our intention to amortize Primus Financial’s credit protection portfolio. Second, at the same time we will pursue new opportunities and structure credit asset management. Third, we will continue to deploy capital to benefit shareholders and four we will continue to align cost with our business approach, while at the same time maintaining appropriate resources to preserve value within our company.

Now let me discuss each of these in more detail. I also want to call your attention to a presentation on our 2009 business outlook and priorities which we posted today on Primus’s website. What do we mean when we say that we intend to amortize Primus Financial’s portfolio? It simply means that Primus Financial will not focus on writing new business to grow its portfolio, and as a result the portfolio will decline in size or amortize over the next three to four years.

Amortization in reality is already happening in Primus Financial’s portfolio as the average life of its portfolio at year end was 3.3 years or 3.03 years, so just slightly over three years compared to 3.7 years at the end of 2007. Approximately 2.6 billion notional Primus Financial’s credit swap portfolio will roll off in 2009 and an additional 5.9 billion will do so in 2010.

Amortization also means that all the capital within the subsidiary, net of operating expenses, claims resulting from any credit events and our debt and preferred obligations in that company will be return to shareholders. Our focus in amortizing Primus Financial’s portfolios is on locking the potentially significant value that we believe is embedded within this company.

We believe that a commitment to return Primus Financial’s capital to shareholders is a clear signal of our change and focus for this business. I wan to add here that amortizing the Primus Financial portfolio does not mean that we will take a passive approach to portfolio management, actually the reverse is true. We intend during these volatile times to actively manage the portfolio with the objective of reducing the risk of negative outcomes.

There are several tactics we could employee as part of this effort including targeted credit mitigation on reference entities that are experiencing credit problems as we done in the past. It will also include a broader restructuring in the credit swaps portfolio, which would necessitate coordination with Primus Financial’s counterparties.

As we amortize the portfolio one of the critical factors that we need to weigh, is how much capital to keep within Primus Financial to support its obligations. Obviously, our counterparties would like us to keep as much capital as long as possible to support potential future credit losses, while our shareholders would like us to return as much as possible as quickly as possible.

In terms of the timing of any potential capital payout to investors, I believe it’s unlikely that we can dividend any of Primus Financial’s capital during 2009 given the current state of the credit markets, but it something that we will periodically review. We have also been evaluating whether Primus Financial needs to maintain rating given our change in approach to managing this business.

It continues to be our intention to target an appropriate rating for Primus Financial, whether this rating is established by an outside rating agency or through our internal capital models. We have decided that we do not need to maintain two independent ratings and plan to maintain ratings with just Standard & Poor’s. Last week we asked Moody's Investors Services to withdraw all of its ratings for Primus Financial. This would include Primus Financial’s current investment grade A-1 counterparty rating, as well as its debt and preferred ratings. This decision among other things will save us approximately $250 million in rating agency and associated fees.

Now, I mentioned before that we believe there is potential value in better within Primus Financial. How can shareholders asses the embedded value. There is a chart that we have prepared in the presentation posted on our website that spells this out and I’d like to spend some time on it.

At year-end Primus Financial had $687 million in capital to support its $22.5 billion portfolio as Richard mentioned, over the portfolios remaining life expected to be in the range of three to four years, Primus will receive $281 million in additional capital by a credit swaps premium payments from counterparties.

We expect Primus Financial to received $87 million in premium payments during 2009. Of course, net of any adjustments for credit losses. Added to this is the investment income we expect to receive on Primus Financial’s cash. So, the sum of Primus Financial’s current cash capital, future credit swap premiums and future investment income represents the total possible value of the company.

There are of course cash outflows that we need to consider so, let me review those. First our operating cost, which over the next three to four years we’re budgeting between $45 million and $50 million in the aggregate for Primus Financial. Then there is interest and dividends on a $300 million in debt and preferred securities which is budgeted at $12 million in 2009, as well as the principle amount of bad debt.

Finally, there are credit charges that Primus Financial will need to pay out in the event of a credit event. So, the some of operating costs, interest expenses, debt repayment and credit charges represent the total of potential cash outflows.

Primus Financial’s embedded value is the total of current cash capital and cash inflows, less the total of cash outflows. I think if you take the time to do the math and depending upon your assumptions for credit losses that there is potentially significant embedded value within the company. As I stated previously we intend to unlock that value over a three to four year time horizon.

Let me move on next to our plan for asset management business. As I mentioned at the outset, we believe there is an opportunity to grow assets under management even with the current dysfunctional state of the structured credit market were investors remain on side lines and new issue volume is almost non existent.

So in this market environment how does Primus expect to grow assets under management? There are numerous conversions going on within our industry today as buyers and seller of credit assets redefine their strategies, business models and priorities. We believe that defaults and further deterioration of credit fundamentals across the credit markets that occurred in the last quarter have prompted the onset of consolidation within the structured credit asset management community.

We have been waiting for this happen and our plan is to take advantage of the opportunity to acquire structured credit assets for motivated seller. Opportunities may also exist from larger banks and financial institutions that have decided that a structured credit asset management business is not core to their franchises. They might decide just to exit business.

At the present time, we continue to be focused on opportunities within the loan market, and more specifically on acquiring collateral lines, loan obligations, management companies and/or management contracts. If we are able to capitalize on the opportunity, it would enable us to achieve the scale we need to put our asset management business on a strong profitable footing.

Another approach, we are beginning to consider is developing an alternative structure for a new credit protection business. I believe, credit protection is a good business and the credit markets should be crying out for new risk taking capacity. In the current environment, the ability to post collateral is critical so the concept of an uncollateralized, highly rated AAA structure credit vehicle is untenable, but I believe there maybe interesting possibilities for a rated collateralized seller of credit protection.

As we pursue opportunities from structured credit, we are planning to use some of the $77 million in capital outside of Primus financial to support this effort. We are also seeking to identify strategic partners with the capital or access to capital that could partner with us, to build a diversified credit asset management business.

Primus Financial got its start, as you may recall by attracting third-party capital sources. We believe there are a number of organizations that strategically are looking to capitalize on opportunities in the credit sector. In our view, these organizations will prefer a partner with a company like Primus that brings a proven, robust asset management platform instead of building such a platform de novo. Obviously, it will be important for both sides to find the right fit and that’s exactly what we’re trying to do.

Let me move on now to discuss capital deployment. I’ve already noted that, we intend to return all Primus Financial capital to shareholders after meeting our obligations to counterparties, debt investors and preferred shareholders. As I mentioned previously, we do not expect a dividend any of Primus Financial’s capital shareholders of 2009 and the timing of any future payouts will be depended upon conditions in the credit markets.

There is of course, another options option to return capital to investors it involves repurchasing Primus equity and/or debt, Primus Guaranty, equity and/or debt. Richard updated you on this or early on the call and it’s certainly something we’ll continue to pursue.

Finally, we are seeing an opportunity to improve returns on our cash investments, while maintaining an appropriate risk profile. Currently Primus Financials cash capital has invested predominantly in treasuries or agency debt. We are looking to broaden this to invest in high-quality corporate debt. This strategy assumes that Standard & Poor’s approves changes in Primus Financials investment policy is outlined in its operating guideline.

Let me now, turn to expense management. As Richard mentioned before, we have reduced operating expenses from a peak of $43 million in 2007 to $31 million in 2008 and to an expected run rate of $26 million in 2009. These reductions reflect our efforts to align our cost structure with our business needs.

In 2008, we began to reduce staff and expenses when we decided to closedown our credit hedged fund and we took additional action more recently as the growth prospects in our approach to Primus Financial have changed. To-date, we have already reduced operating expenses by approximately 30%. I am comfortable with our current headcount in operating expense base, recognize we will continue to review cost throughout 2009.

So that gives you an overview of our new approach in priorities in 2009, which in summary include amortizing the Primus Financial product portfolio, presuming new opportunities in structured credit Asset Management, continuing to deploy capital to benefit shareholders, aligning costs with our business approach while maintaining appropriate resources.

As we pursue this approach and our priorities, we’ve established and we’ll be following a couple of important parameter. We will closely manage Primus Financial’s credit swap portfolio in amortization with the goal of preserving capital and unlocking the potentially significant embedded value in this business.

Any excess capital after meeting Primus Financial’s credit swap and debt in preferred obligations, we’ll be returned to shareholders. We will also use Primus Guaranty’s capital opportunistically to repurchase its common equity and debt securities, balanced against the needs to support the company’s strategic goals of growing assets under management and reemerging with a new credit protection business.

As I wrap up, I want to underscore that our Board and Management team are committed to our plan. We’ve recognize the time have change for all participants in the credit markets. We have looked hard at these changes and benchmarked our company’s strengths against them. The end result is the plan that I have summarized for you. At Primus, 2009 will be all about executing this plan to deliver value to shareholders.

Thank you very much for your time and now Richard and I will be happy to take your questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Martin Ji - ClearBridge Advisors.

Martin Ji - ClearBridge Advisors

One question, of the to the CLO management business, can you remind me what’s the original investment from the firm?

Richard Claiden

I think it was about $13 million in total.

Martin Ji - ClearBridge Advisors

$13 million?

Martin Ji - ClearBridge Advisors

Okay and the other question I have is on the realized credit loss, I think it’s somewhere near $65 million for the quarter. Do we see some other lingering numbers for the next quarter given what happened with Lehman, Kaupthing and Washington Mutual? Or that’s all already reflected on the book?

Richard Claiden

Those are already reflected, Martin. Yes.


(Operator Instructions) At this time there are no questions in queue.

Richard Claiden

Thank you, Kamisha. I think, again thank you everybody for your time today and clearly we have challenges ahead in 2009 and we are working very hard to execute on the plan that we’ve laid out today. So, thank you very much and we look forward to talking to you next quarter.


Thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect and have a wonderful day.

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