TROUBLED British mortgage lender Northern Rock will issue government-guaranteed bonds to repay the tens of billions of pounds in emergency loans from the Bank of England, Britain's Treasury told the London Stock Exchange yesterday.

The move significantly reduces the amount of capital that 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 pounds (US$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 Treasury 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 planned 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 nationalization 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 it welcomed the Treasury's announcement, saying a private sector solution was preferable, and added that it was in shareholders' best interests.

Northern Rock Shares rose 40 percent on the London Stock Exchange mid-morning yesterday to 90.50 pence (US$1.77).

Richard Branson, whose Virgin Group is Northern Rock's preferred bidder, said he would examine the detail 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 traveling 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 nationalization of the bank - remain open.