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 board of directors also approved funding and project agreements from the city of Birmingham, which detailed the city's commitment to paying $3 million a year for 30 years to the debt service on the project. — Erin Edgemon, AL.com, "BJCC selects 4 local firms to underwrite $300 million project," 18 Apr. 2018 Rice noted the numbers in the budget presented at the preliminary workshop on June 5 did not include the debt services, the capital projects, or the food services funds. — Michelle Iracheta, Houston Chronicle, "Conroe ISD Trustees begin 2018-2019 budget discussions," 16 June 2018 The revenue that is brought in is split between the Woodlands Township debt service, the Convention and Visitors Bureau and the mandatory 6 percent paid to the state. — Marialuisa Rincon, Houston Chronicle, "Township officials face challenges with Airbnb," 8 July 2018 The other half of the budget goes toward things like transportation, facilities, debt services and administration. — Arika Herron, Indianapolis Star, "Big cuts, teacher raises recommended for Indianapolis Public Schools," 29 June 2018 The general city purpose budget excludes capital improvements, debt services and enterprise funds, like the parking department, which earns revenue from non-tax sources. — Andrew Mollica, Milwaukee Journal Sentinel, "By the numbers: Edward Flynn's time as Milwaukee police chief," 16 Feb. 2018 The economists Linda Bilmes and Joseph Stiglitz have done extraordinary work attempting to tally up the full costs of the wars, including higher oil prices, debt service, obligations to returning veterans, lost wages, lost lives, and much else. — David Roberts, Vox, "Putting a dollar value on one of oil’s biggest subsidies: military protection," 21 Sep. 2018 City of Brookfield's financing of a conference center at the struggling Brookfield Square Mall tarnished its sterling bond rating, a move that means the municipality is at higher risk of paying more for debt service in the years to come. — Karen Pilarski, Milwaukee Journal Sentinel, "City of Brookfield approves conference center financing, but loses sterling bond rating in the process," 20 June 2018 Tolls have increased every year since 2009, in part to pay for a long-term turnpike reconstruction project and to handle debt service. — Jason Laughlin, Philly.com, "Pennsylvania Turnpike tolls to increase 6% in 2019," 3 July 2018

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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5 Mar 2019

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The first known use of debt service was in 1929

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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