LONDON (AP) — Northern Rock will issue government-guaranteed bonds to repay the tens of billions in emergency loans from the Bank of England, Britain's Treasury said yesterday in a statement to the London Stock Exchange.

The move significantly reduces the amount of capital prospective bidders would need to raise to take over the troubled mortgage lender because they will no longer face an obligation to pay back more than £25 billion ($49 billion) to the central bank.

The bonds — backed by mortgages, securities and consumer loans — will be issued to raise money to pay back the Bank of England, the statement said.

The proposed financing structure will make it easier for bidders to arrange funding to take over Northern Rock under difficult credit conditions.

New bidders will be allowed to submit proposals to save the troubled bank by February 4, the statement said.

Treasury Chief Alistair Darling plans to make a statement to Parliament later yesterday to expand on the plans put forward by Goldman Sachs Group Inc. to restructure the bank to make a private sale easier.

The Treasury said a private sale was its preferred option but warned temporary nationalisation would be necessary to protect taxpayers' money if no sale was agreed. It ruled out putting the company into administration.

Northern Rock's board said in a statement it welcomed the Treasury's announcement saying a private sector solution was preferable, adding it was in shareholders' best interests.

Northern Rock shares rose 36.8 percent on the London Stock Exchange mid-afternoon yesterday to 88.25 pence ($1.72).

Richard Branson, whose Virgin Group is Northern Rock's preferred bidder, said he would examine the details of the package over the next couple of weeks.

"Superficially, we are very happy," he said in New Delhi, where is part of a business delegation travelling with Prime Minister Gordon Brown on a trip to China and India.

"We believe from what we have seen that the package is workable and it should be possible for a private consortium like Virgin Bank to make a go of it but obviously we need to see the small print. I think the deal we have put on the table is a fair deal," he said.

Branson said he hadn't spoken to Brown about Northern Rock. The prime minister has declined to comment on the details of the Goldman report, saying all options — including nationalisation of the bank — remain open.

Brown defended the British government's decision to bail out the bank.

"When we were faced last August with the problems at Northern Rock and the danger that this would spread to the rest of the economy, it was right — and I believe everybody agreed — that the government intervened to protect the depositors and their savings and at the same time ensure the stability of the economy," he said at a joint news conference with Indian Prime Minister Manmohan Singh.

The government hopes to have a solution for Northern Rock by mid-February, to meet a European Union deadline for the cut off of state aid.

The mortgage lender ran into trouble in September because of its heavy reliance on short-term money markets for funding. Its subsequent profit warning and appeal to the Bank of England for an emergency loan led to the first run on a British bank since 1866.

The government has also extended loan facilities to the bank until March 17, the Treasury said. It also said that its guarantees for savers' deposits at the bank remain in place.