debt service

noun

Definition of debt service

: the amount of interest and sinking fund payments due annually on long-term debt

Examples of debt service in a Sentence

Recent Examples on the Web

The debt service fee has since been lifted, but the mayor added a quarterly $30 infrastructure replacement fee to raise revenue to repair aging infrastructure to his budget for the 2020 fiscal year, which began July 1. — David Anderson, baltimoresun.com, "Havre de Grace seeks to borrow more than $14 million for water and sewer repairs," 23 Aug. 2019 The lakes farthest downriver — Gonzales and Wood — don’t have enough property value to cover the cost of debt service and may ultimately seek aid from the state or federal government. — San Antonio Express-News, "Lakefront landowners left high and dry," 15 Aug. 2019 Emanuelson said the policy limits the annual increase of the amount of tax levy funds spent on debt service to 5 percent. — Bob Dohr, Milwaukee Journal Sentinel, "Seeing red: Which Milwaukee suburbs are closest to their debt limits?," 11 July 2018 Both the debt service level and credit quality of borrowers have improved in the aftermath of the crisis. — Ben Carlson, Fortune, "Is Easy Money From the Fed Turning the U.S. Economy Japanese?," 1 Aug. 2019 The debt service on the bonds could drop lower than $700,000 per year if interest rates cooperate, and those costs would be offset in part by property taxes generated at the site. — Frederick Melo, Twin Cities, "Hillcrest funding would add $5 to median St. Paul property tax for 25 years," 11 July 2019 The severe crisis was partly due to high debt service requirements that affected the budget and affected the balance of payments. — Priscilla Twumasi-baffour, Quartz Africa, "Many Ghanaians think their country should divorce the IMF—that isn’t likely to happen," 8 July 2019 The city will pay $300 million in debt service on its bonds. — Bill Turque, kansascity, "Here are six key things about KC's new $1.7 billion budget | The Kansas City Star," 22 Mar. 2018 The town’s debt service on the bonds will spike in the third year, but by then, several large-scale development projects facilitated by the extended utility lines will be underway and creating tax revenue to offset the cost, said Babbitt. — Janice Steinhagen, courant.com, "Griswold Town Budget Approved," 8 July 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'debt service.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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More Definitions for debt service

debt service

noun

Financial Definition of debt service

What It Is

Debt service is the act of making interest and principal payments on debt.

How It Works

For example, let's say Company XYZ borrows $10,000,000 and the payments work out to $14,000 per month. Making this $14,000 payment is called servicing the debt.

Borrowing money allows companies to make investments without having to commit a lot of their own capital, but the even greater purpose is to maximize shareholder value. As in personal finance, too much debt can be a very, very bad thing, but a little can go a long way. For most investors, it is thus usually unwise to avoid investing in companies with debt; the trick is to find companies that manage their debt well.

This is why companies must consider how debt service fits into their expansion plans if they're using debt to fund the expansion. For example, if Company XYZ is using its borrowed $10,000,000 to build a factory that won't produce anything for five years, how will it service the debt between now and then? In other words, where will it scrape up the cash for those $14,000 payments until the factory is online? And is it sure that the factory will generate at least $14,000 per month once it is online? This is the risk that companies take with debt.

Why It Matters

Companies that issue bonds are perhaps the most well-known debt servicers. They must provide their bondholders with set interest and principal payments on specified dates, and in some cases, must be willing to convert that debt into equity at specified ratios or repay the debt early if certain events occur. When a debtor fails to service its debt, the debtor is sometimes considered in default. In some cases, even the speculation that a debtor might not be able to service its debt can cause its stock price to go down and make it very difficult to obtain financing or other help later.

Because debt service responsibilities can vary among similar companies, some financial measures, particularly EBITDA, intrinsically exclude debt structures in their calculations so comparisons can be made more directly.

Source: Investing Answers

debt service

noun

Legal Definition of debt service

: the amount of interest and principal payments due annually on long-term debt

debt service

Definition of debt service

Examples of debt service in a Sentence

First Known Use of debt service

Financial Definition of debt service

Legal Definition of debt service

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