Brazilian postal workers became unlikely victims of Argentina’s default last week after a $168 million fund used by their pension plan recorded a loss on most of its assets.
The fund administered by Bank of New York Mellon Corp.’s local unit wrote down its value by about 51 percent after losses on securities linked to Argentine government debt, according to a regulatory filing yesterday. Postalis, the pension manager serving about 130,000 current and former postal workers in Brazil, is adopting legal measures in Brazil and the U.S. to mitigate losses, the fund’s press office wrote in an e-mailed response to questions.
Argentina last week failed to make a $539 million interest payment on its bonds, prompting Standard & Poor’s and Fitch Ratings to declare the country in default for the second time since 2001. The country’s bond prices have since retreated from a three-year high, and the International Swaps & Derivatives Association ruled that payouts must be made on a net $1 billion of derivatives linked to the country’s creditworthiness.
“Based on the ruling of ISDA on the default event, you could see many more” investors declaring losses tied to Argentina, Marco Aurelio de Sa, the head of trading at Credit Agricole Private Banking in Miami, said in a telephone interview.
Postalis is Brazil’s 14th-biggest pension group by investments under management, according to June 2013 data available from the Brazilian pension association Abrapp. It had 8 billion reais ($3.5 billion) of assets, according to the latest data available.
The country’s pension regulator declined to comment on the matter.
The BNY Mellon-administered fund, called Brasil Sovereign II Fundo de Investimento de Divida Externa FIDEX, said yesterday it wrote down net assets by 197.9 million reais to 185.5 million reais by booking a provision on credit-linked notes tied to Argentine bonds. The loss also stemmed from a change in methods for valuing the investments, according to the filing.
Credit-linked notes, a type of structured security with an embedded derivative, promise investors a higher yield than they can get from conventional bonds in exchange for a higher risk of losses under specified credit events, such as a default.
Postalis was created in 1981 to guarantee retirement returns to its members, according to its website.
The Argentina writedown follows losses by Postalis in recent years on some of Brazil’s biggest corporate debacles, including investments related to Banco BVA SA, which was taken over by the central bank in October 2012, and on Eike Batista’s companies, most of which collapsed last year.
Argentine government bonds due 2033 rose 1.82 cent to 85.46 cents on the dollar as of 12:44 p.m. in New York.
The Brazilian fund made the investment linked to Argentina’s sovereign debt in December 2011, when it was overseen by Atlantica Administracao de Recursos Ltda., according to the filing. BNY Mellon took it over in March 2012.
In August of that year, the U.S. Securities and Exchange Commission charged Fabrizio Neves, Atlantica’s then-owner, with fraud for overcharging customers $36 million by using hidden fees on structured-notes transactions. Neves and the SEC agreed to settle the dispute in February of this year, according to a statement from the U.S. regulator.
Neves didn’t respond to a call to his home or e-mails seeking comment.