NEW YORK (Bloomberg) - Primus Guaranty Ltd., a manager of $21.5 billion in credit-default swaps that lost its top credit ratings last year, posted a first-quarter net profit as the market value of the derivatives improved.

Net income was $106.8 million, or $2.61 a share, compared with a net loss of $670.1 million, or $14.85, a year earlier, the Hamilton, Bermuda-based company said yesterday in a statement. Excluding changes in the market value of the contracts, on which Primus does not post collateral to its bank clients, the company said it lost $6.1 million, or 15 cents a share.

"We are encouraged by recent signs of stabilisation and improvement in the credit markets," CEO Thomas Jasper said in the statement.

Mr. Jasper, 60, a derivatives pioneer who helped standardize swaps trading more than 20 years ago, is seeking to preserve about $747 million in capital at Primus, not including future premiums, after banks stopped buying credit swaps from it and similar firms last year amid the credit crisis. Jasper created the company seven years ago to tap into the growing credit-swaps market by taking on the risk of corporate defaults from banks and other financial firms for fees.

Once given the highest ratings by Standard & Poor's and Moody's Investors Service, Primus's credit-swaps unit this year was cut to a level that prohibits it from selling new contracts after having to pay out almost $146 million, or 18 percent of its capital, after the bankruptcies of Lehman Brothers Holdings Inc. and Washington Mutual Inc. and the Icelandic government's seizure of its three-largest banks.

Mr. Jasper said in an interview last month that the firm may seek to restructure parts or all of its credit-default swaps holdings. It also is buying back debt at a discount to save money and pursuing new businesses, including the potential for creating a new credit-swaps seller that would post collateral.

Primus in April bought $21.9 million of its $75 million in subordinated notes due in 2034 for 32 cents on the dollar, or $7 million, according to a company statement. It bought another $22.7 million of notes due in 2021 for $5.7 million. The purchases are expected to add gains totaling $31.3 million in the second quarter, the company said in the statement yesterday.