NEW YORK (Bloomberg) Shares of Bermuda-based Primus Guaranty Ltd., the only publicly traded company that makes most of its money investing in credit-default swaps, surged the most since May 2006 as it boosted revenue selling a record amount of the derivatives.

Second-quarter revenue jumped 25 percent to $32 million as concerns about losses from subprime mortgages and a slowdown in investor demand for risky debt boosted what Primus gets for selling credit-default swaps, the company said in a statement. Investors use the contracts to speculate on the ability of companies to repay debt or hedge against the risk they won't.

Shares in Primus rose as much as 11 percent, but ended up 5.1 percent higher at $8.41 in New York Stock Exchange composite trading. They are down 26 percent this year, compared with a 3.8 percent gain in the Standard & Poor's 500 Index.

The jump in risk premiums "bodes very well for us, and we have been anticipating and positioning ourselves to take advantage of this for a long time," chief executive officer Thomas Jasper said in a conference call with analysts.

Excluding mark-to-market losses the company is required to record under generally accepted accounting principles, profit rose 20 percent to $14.9 million, or 33 cents a share, matching the average per-share estimate of five analysts surveyed by Bloomberg. Primus, which has the highest rating for counterparties, doesn't post collateral on its credit-default swaps and doesn't face margin calls from dealers when the values of the contracts drop.

Including the drop in value on its credit swap portfolio, the company said it had a net loss of $21.5 million, or 48 cents a share, compared with a profit of $10.7 million, or 24 cents a share, a year earlier.

Primus increased its derivatives business by the most since it became a publicly traded company in 2004 as concerns about losses in the subprime mortgage market and a slowdown in demand for risky debt caused a surge in risk premiums. Primus, known as a credit derivative product company, had scaled back its investments earlier this year when risk premiums had fallen to historic lows.

The CDX North America Investment Grade Index, a benchmark credit-default swap index tied to the debt of 125 companies, has more than doubled since March, signaling deteriorating investor confidence in corporate creditworthiness, according to London- based CMA Datavision. In the second quarter, the index rose 5.4 percent. As the cost of credit-default swaps increase, the market value for contracts held by investors such as Primus that sell them falls.

Primus sold credit-default swaps on more than $2.5 billion of corporate debt last quarter, most of which was on pools of the derivatives known as synthetic collateralized debt obligations that are sliced up according to the risk. That's double the contracts sold in the first quarter. The company's total credit swap portfolio grew to $18.6 billion from $15.8 billion at the end of 2006.

Primus and others that sell credit-default swaps are paid fees in exchange for agreeing to cover losses in case of a default.

Credit-default swaps were conceived a decade ago to protect bondholders against default and pay the buyer face value in exchange for the underlying securities should the borrowers fail to adhere to their debt agreements.