Variable-rate demand note

(redirected from Variable Rate Demand Obligations)
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Variable-rate demand note

A note that is payable on demand and bears interest tied to a money market rate.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Auction rate securities are an alternative to variable rate demand obligation bonds.
SOURCE OF REPAYMENT: The 'F1+' Short-Term rating also reflects management's policies to ensure for a timely delivery of the cash amounts necessary to purchase variable rate demand obligations if necessary.
New York: On the effective date of April 12, 2016, Fitch Ratings will revise the long-term rating to 'AA' from 'A+' and assign a short-term 'F1' rating to the Massachusetts Department of Transportation metropolitan highway system revenue bonds (senior), variable rate demand obligations 2010 series A-2.
At present, variable rate demand obligations (VRDOs) meeting Fitch's dual party criteria receive an uplift in the long-term rating of up to two notches if both the LOC provider and underlying rating on the bond are 'A' or higher.

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