NEW YORK (Bloomberg) — Primus Guaranty Ltd., the Bermuda-based company that sold banks credit-default swaps protecting $17.5 billion of debt, said its fourth-quarter loss narrowed as a recovery in corporate debt markets boosted bond values and lowered defaults.

The loss of $35.5 million, or 87 cents a share, which excludes gains in market value on its credit swaps, compares with a loss of $60.2 million, or $1.39, a year earlier, according to a statement early yesterday. When accounting for the swaps' market value, Primus had net income of $295 million, compared with a $918.5 million loss in the fourth quarter of 2008.

Primus rose 19 cents, or 5.6 percent, to $3.55 in New York Stock Exchange composite trading yesterday. The stock is up 22 percent this year after more than doubling in 2009.

The company, whose credit swaps unit was shut out of the market last year 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 its asset-management unit and exploring a new credit-protection business while restructuring the company's swaps deals with banks to limit future losses.

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.