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 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 The budget also includes a $1 million increase for capital projects and open space; $391,000 more for MDC sewer service; an additional $209,000 for debt service; and $100,000 more for other post-employment benefits. — Steven Goode, Courant Community, "Voters Approve Budget Proposal," 9 May 2018 The Alabama Legislature passed a bill last week to levy a 3 percent tax on auto leases and rentals in Jefferson County to help support the debt service for the project. — Erin Edgemon, AL.com, "Birmingham commits $90 million over 30 years for downtown stadium, Legacy Arena renovation," 27 Mar. 2018 The tax would raise about $274 million to pay for various projects as well as debt service for the bond issue. — David Ibata, ajc, "Forsyth to seek voter OK for $274M SPLOST," 11 July 2018 The city is expected to receive $465.5 million in property tax revenue by the end of the current fiscal year, compared to $356.8 million in 2010 — including property taxes for general fund and debt service. — Gordon Dickson And Nicholas Sakelaris, star-telegram, "Priced out of their home? North Texans see tax bill rise $1,200 in five years," 6 July 2018 This budget-buster, as well as debt service and state retiree benefits, threaten the state’s fiscal health, Ain told council members. — Jon Chesto, BostonGlobe.com, "Business groups face tough fight on subsidized health care," 19 June 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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26 Nov 2018

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The first known use of debt service was in 1929

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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