Variable Rate Demand Note - VRDN

See: Demand Note.

A variable rate demand note (VRDN) is a special kind of debt instrument: a long-term municipal bond with extra doodads.

With VRDNs, you accrue interest based on a current money market rate (like the popular prime rate). That's the variable rate part. Long-term borrowing with short-term payouts.

The demand part in VRDNs is pretty cool. You, as the VRDN holder, can demand full repayment of the entire amount you loaned, whenever you feel like it. Like a put option, you're not obligated to do this, but you have the right to do it, and the borrower will have to pay you back.

VRDNs look attractive for investors since they pay out now, and have the demand, put-like option embedded, so they can cash out whenever they want. If that wasn’t enough, investors also like VRDNs because they don’t track with your usual stocks and bonds, making them great portfolio diversification proxies.

That’s how VRDNs roll.