NEW YORK (Bloomberg) - Primus Guaranty Ltd., the Bermuda-based company that sold banks credit-default swaps protecting almost $20 billion of debt, may have to pay $35 million on contracts that insured against a default by Financial Guaranty Insurance Co. (FGIC).

Primus, whose credit swaps unit was shut out of the market last year amid the financial crisis that toppled Lehman Brothers Holdings Inc., sold a total of $40 million of swaps protecting against a default by FGIC, the company said yesterday in a regulatory filing. After subtracting the estimated value of the underlying debt, Primus said the net payout may be $35 million.

Swaps sold on bond insurers have threatened to erode Primus's cash as CEO Thomas Jasper seeks to rebuild the company's business by expanding its asset-management unit and exploring a new protection-selling business. Primus's swaps unit, Primus Financial Products LLC, had about $650 million in cash at the end of November and expected to receive $18 million in premiums this month from the contracts.

The company sold $378.3 million of protection on five financial guarantors including FGIC. The figure only includes swaps with counterparties that are current on the contracts, Primus said in the filing.

Primus said in its annual filing with the US Securities and Exchange Commission in March that the company does not believe it is obligated to make payouts on swaps sold to a unit of Lehman, which the company said at the time had failed to pay a premium of about $4.1 million following its September 2008 bankruptcy.

Primus said its swaps on bond insurers had a negative market value as of November 30 of $140 million, the amount of payouts the company faced if all the contracts were terminated.

Primus has been seeking to cap its losses by paying bank customers to rip up existing contracts and shifting contracts to other units in transactions that limit future payouts for the company.

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.

Primus's credit-swaps unit, once given the highest ratings by Standard & Poor's and Moody's Investors Service, 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, following the bankruptcies of Lehman and Washington Mutual Inc., and the Icelandic government's seizure of the country's three largest banks.

Primus shares were unchanged at $3.21 in New York Stock Exchange composite trading on Friday. They have almost tripled this year after dropping to as low as 40 cents in October 2008.