Variable-rate demand note

(redirected from Variable Rate Demand Obligations)
Also found in: Acronyms.

Variable-rate demand note

A note that is payable on demand and bears interest tied to a money market rate.

Variable-Rate Demand Note

A debt security that a holder may require the issuer to redeem before maturity. When this occurs, the issuer must pay par to the holder, and the holder loses any future coupon payments that he/she might otherwise have been due. An advantage to a variable-rate demand note from the holder's standpoint is the fact that the holder may reinvest the par value in a new bond in a time of rising interest rates. This protects the holder from certain types of interest rate risk.

Variable-rate demand notes come in two main forms. The first allows the holder to demand redemption on any of several days throughout the life of the bond, while the second only allows this on one particular day. Variable rate demand notes are also known as variable rate demand obligations, option tender bonds, or put bonds. In Canada, the most common term is a retractable bond.
References in periodicals archive ?
However, the cost of obtaining a letter of credit, along with the risks associated with the elimination and/or renewals of the letter of credit, can make the cost of funds for an issuance of variable rate demand obligations on par with or even more expensive than an issuance of auction rate securities.
The district's variable rate exposure remains the same as it was when the COPs were variable rate demand obligations and paying interest based on the BMA rate.
About $302 million will be issued as subordinated taxable auction-rate securities, and $166 million as subordinated tax-exempt variable rate demand obligations (VRDO).

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