Education Center

Understanding Variable Rate Demand Obligations

A variable rate demand obligation (VRDO) is a municipal security for which the interest rate resets on a periodic basis and holders are able to liquidate their security through a “put” or “tender” feature, at par. A dealer, called a Remarketing Agent, is responsible for reselling to new investors securities that have been tendered for purchase by an investor. To ensure that the securities are able to be “put” or “tendered” by a holder in the event that a Remarketing Agent is unable to remarket the security, a VRDO typically operates with a Liquidity Facility – a Letter of Credit or Standby Bond Purchase Agreement – that ensures that an investor is able to liquidate their position. Information on EMMA about a VRDO is provided by the MSRB’s Short-term Obligation Rate Transparency (SHORT) System, which began collecting such information on April 1, 2009. Information about a VRDO generally is collected by no later than 6:30 P.M. Eastern on the day that an interest rate is reset.

The following items are disclosed in connection with an interest rate reset in a VRDO, depending on your current view.

Date and Time of Interest Rate Reset - shows the time and date that Remarketing Agent determined the interest rate.

CUSIP - shows the CUSIP9 number for the VRDO. Data is not available for a VRDO that does not have a CUSIP9 number.

Remarketing Agent - shows the dealer that is responsible for reselling to new investors securities that have been tendered for purchase by an investor. The Remarketing Agent typically also determines the interest rate for the security at each interest rate reset.

Length of the Interest Rate Reset Period - shows the number of calendar days that the interest rate is applicable.

Interest Rate - shows the interest rate, expressed as a percentage. This is the interest rate that the VRDO will be during the applicable Interest Rate Reset Period.

Effective Date of Interest Rate - shows effective date that the interest rate reset is applicable.

Rate Type - shows how the interest rate was determined on the specific interest rate reset date. Rate type categories are as follows:

- (M) Maximum Rate – indicates that the interest rate is set at the highest rate allowable as specified in official documents for the VRDO.

- (F) Set by Formula – indicates that the interest rate was set pursuant to a formula specified in official documents for the VRDO.

- (R) Set by Remarketing Agent – indicates that the interest rate was determined by the Remarketing Agent.

Length of Notification Period - shows the number of calendar days that may elapse, as specified in official documents for the VRDO, between a holder tendering its security and a Liquidity Facility purchasing the tendered security in the event that the Remarketing Agent is unable to remarket the tendered security.

Minimum Denomination - shows the minimum principal amount permissible for transactions in the security as specified under the auction rate security program documents.

Maximum Rate - shows, if specified, the highest interest rate as specified in official documents for the shows effective date that the interest rate reset is applicable. that could be set. If a maximum rate is specified in the program documents, but such interest rate is the result of a formula that cannot be calculated on the day of an interest rate reset, a value of “NC” will be shown.

Liquidity Facility - shows for each liquidity facility applicable to the VRDO, the type – either a Letter of Credit, Standby Bond Purchase Agreement or a “self liquidity” program whereby liquidity is provided by the issuer, conduit borrower or affiliate. Also shows the identity of the liquidity provider and the expiration date.

Identity of Tender Agent - agent of the issuer to whom bondholders may tender their position in the VRDO.

Aggregate Par Amount - Bank Bond - current par amount of the VRDO, if any, held by liquidity providers (also known as securities held as “Bank Bonds”).

Aggregate Par Amount - Investors and Remarketing Agent- current par amount of the VRDO, if any, held by parties other than a liquidity provider, which represents the aggregate par amounts held by the VRDO Remarketing Agent and by investors. Note, a short position reported to the SHORT System will be displayed as a negative value in this field.