NEW YORK (Bloomberg) - Primus Guaranty Ltd., the Bermuda-based company seeking to rebuild its business of selling debt guarantees to financial companies, reported a $40.9 million loss in the first quarter as it terminated part of the more than $20 billion of credit-default swaps it had outstanding.

The loss, which is $1.01 per share, widened from $6.1 million, or 15 cents per share, a year earlier, Primus said in a statement yesterday. When accounting for gains in the market value of its credit-default swaps, Primus had net income of $86.5 million, down from $106.8 million a year earlier, according to the statement.

The company, whose credit-swaps unit was shut out of the market amid the financial crisis that toppled Lehman Brothers Holdings Inc., Washington Mutual Inc. and other financial companies it bet on, is recovering from a surge in defaults that wiped out almost a fifth of its capital.

Chief executive officer Thomas Jasper, a former Salomon Brothers Inc. banker who helped pioneer the interest-rate swaps market in the 1980s, is expanding the asset-management unit and exploring a new credit-protection business while restructuring the company's swaps deals with banks to limit future losses.

The company has been negotiating with counterparties to terminate contracts at a discount and in other cases shifting credit swaps to subsidiaries to cap losses on some of its riskiest bets. The company reported $54.2 million in payments and fees related to such transactions in the first quarter.

Primus said its credit swaps guarantees — which mostly back corporate and sovereign debt — declined to $16.4 billion as of March 31, from $17.5 billion at the end of 2009. The credit swaps portfolio has shrunk from $24.2 billion at the end of June 2008.

Credit-default swaps, which are used to hedge against losses or to speculate on a company's ability to repay its debt, pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.