Northern Rock Plc, the British mortgage lender bailed out by the Bank of England two months ago, said the government backed Richard Branson's Virgin Group Ltd as the preferred bidder for the company.

Northern Rock rose as much 57 percent in London trading after saying yesterday that Virgin offered an immediate 11-billion-pound (US$22.7 billion) repayment toward about 25 billion pounds lent by the central bank.

Virgin would also inject 1.3 billion pounds into the bank, including half funded by new shares offered at 25 pence each to existing holders, said Bloomberg News.

"It's an indicative proposal and not an offer, and could leave the door open to a counter-bid," said Simon Willis, a London-based analyst at NCB Stockbrokers. "That's why I can see the shares trading higher."

Virgin, which would combine the Newcastle-based bank with its Virgin Money unit, is backed by billionaire Wilbur Ross, American International Group Inc, Toscafund Asset Management LP and First Eastern Investment Group. Virgin competed with J.C. Flowers & Co, Olivant Advisers Ltd and Cerberus Capital Management, a United States private-equity firm.

The combination would leave the Virgin-led group with as much as 55 percent of the company, Northern Rock said. The implied value of Virgin Money is 250 million pounds, bringing the total investment from Virgin to 1.55 billion pounds. Blackstone Group LP, Citigroup Inc, and Merrill Lynch & Co are advising Northern Rock.

Northern Rock shares traded up 21 percent to 104.5 pence at 12:10pm, valuing the company at 438 million pounds. The shares are down 75 percent since September 14, when Northern Rock said it sought emergency funding from the Bank of England following the collapse of the U.S. subprime mortgage market.

"A solution that firmly restores the company's prospects has been identified," Northern Rock chairman Bryan Sanderson said. "Furthermore our retail depositors can be fully reassured that the government has said it will ensure savers' money is safe whatever the outcome."

Northern Rock is "continuing to explore other options as part of its strategic review," the company said.

Northern Rock, which relied on the money markets for most of its funding, sought emergency finance from the central bank after the collapse of the US subprime mortgage market triggered a global credit crisis. The announcement on September 14 sparked the first run on a UK bank in more than a century.

The Bank of England "will have a clear path towards repayment in full," Northern Rock said yesterday.

"We will achieve all this without additional burden on the taxpayer and we will offer shareholders the opportunity to participate in the future growth of the business," Branson said in a letter to Northern Rock customers yesterday. The proposal will "stop the business being broken up and disbanded, saving thousands of jobs," he wrote.

Northern Rock investors including Monaco-based hedge fund SRM Advisers, with a 6.84 percent stake, have asked the bank to change its voting rights to allow shareholders to be consulted on any sale to avoid a "fire-sale" of assets.