Deloitte
Accounting Research Tool
...
Chapter 4 — Cash and Cash Equivalents

4.5 Variable-Rate Demand Notes

4.5 Variable-Rate Demand Notes

Variable-rate demand notes (VRDNs), also called “low floaters” or “seven-day floaters,” generally are municipal securities that have long-term stated maturities. However, they also have certain economic characteristics of short-term investments, such as their rate-setting mechanism and their liquidity provisions. These notes are normally secured by a letter of credit. The rates on VRDNs are reset periodically (e.g., daily, weekly, monthly) through an auction process. If there is a failed auction, the VRDNs can be tendered (i.e., put) by the investor for par plus accrued interest. The counterparty to the put is typically the third party that provided a letter of credit. However, in certain cases in which no letter of credit is involved, the counterparty may be the original issuer of the VRDN itself (e.g., a state, municipality, county, or other governmental entity).