Definition: Variable-rate notes

Category: External debt - IMF

These securities adopted the standard characteristics of a variable-rate bond. 

However, whereas a standard characteristic of a variable-rate bond is that it carries a fixed spread over a referral index, the spread over LIBOR on a VRN varies over time depending on the change in the perceived credit risk of the issuer. 

The spread is reset at each rollover date—normally every three months—by means of negotiation between the issuer and arranging house. 

VRNs are usually issued with no maturity date (perpetual VRNs) but fixed five-year and longer-dated issues are in existence. 

VRNs generally have a put option for the existing holders of notes to sell the issue back to the lead manager of the issuing syndicate, at par, at any interest payment date.
International Monetary Fund (IMF), "External Debt Statistics: Guide for Compilers and Users; Appendix I. Specific Financial Instruments and Transactions: Classifications", Washington D.C., 2003