A note on which the spread varies over time depending on the change in the perceived credit risk of the issuing firm. A variable rate note is similar in characteristics to a floating-rate note (FRN) except that the latter carries a fixed spread over a floating reference rate such as LIBOR. In a variable rate note (VRN), the spread resets at each fixing date (e.g. each 3- or 6-months) based on mutual agreement between the issuer and the arranger.

In general, VRNs have an embedded put option that allows note holders to sell the notes back to the lead manager of the issuing syndicate, at par, at any payment date (this type of VRNs is usually known as a variable rate demand obligation). Since variable rate notes pay short-term rates, they sell at close to par in the secondary market.