Reclined

TheStreet.com on Primus Guaranty: Wacky and Uninformed

Wow, someone's certainly furious here ...

I like Tom and his ideas but would love for him to more directly address the central concern. While the TheStreet.com article appears somewhat unstructured it is not entirely oblivious of most of the points Tom is making in his article (no serious risk of BK or losing the AAA rating, currently only m2m losses etc).

Key sentence in the TheStreet.com article is "Given Primus' high cost structure and its book of credit protection that could be easily replicated today at much better prices, the stock will remain in trouble."

TheStreet implies that Primus has most of its available capital employed and might not have a lot of dry powder left to take advantage of the current spreads. Recapitalisation probably is difficult/too dilutive with the stock price so low. Therefore competitors who are starting in the current environment might have a much better priced portfolio in a short time. Tom's data shows that Primus is currently writing more business than it has done before which is a good thing. The remaining question then is how much dry powder there is left in case the current "mispricing" will stay with us for say the remainder of 2008.

And, of course the argument with a cost structure, that according to TheStreet is 60-100% higher than industry average, also needs to be addressed (though this might be more open to management's intervention).

I would love to hear Tom's view on these two points specifically.