dhatkoff

TheStreet.com on Primus Guaranty: Wacky and Uninformed

Tom, thanks for the great discussion of Primus' merits. One point in your post that I think needs a bit of clarification though. Yes, spreads have widened significantly, and no, I don't think most people believe that that is because fundamental credit risk has increased in proportion. But that disconnect could exist for one of two reasons: 1) As you explained, we're in fear mode so spreads are unduly wide, or 2) A tremendously benign credit environment allowed spreads in the recent past to tighten to record levels, suggesting perhaps risk was underpriced in the past.

Reality is probably a mix of the two, but with a $29Bn book of business I think the clear downside risk is that that book is slightly mispriced, given how levered the business model is.

Assuming their in-force book of business performs ok, you're right, they're in an amazing position to take advantage of significantly more profitable business. As a major investor in the company, how did you get comfort in the quality of their portfolio?