Definition of debt service
: the amount of interest and sinking fund payments due annually on long-term debt
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Recent Examples of debt service from the Web
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The 2018 budget also was the last for the town to make a debt service payment on the garage which was built in 1990-91.
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Village officials believe the new debt service level will help Kenilworth finance almost half of an estimated $8.5 million in second phase projects via alternate revenue source bonds.
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The salt storage project was included in a capital borrowing and would be paid back by debt service.
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Financial contributions The BJCC Authority is committing $10.7 million to the annual debt service on the project.
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Southeastern said the lower debt load will result in reduced annual debt service of $40 million, allowing the company to spend more on remodeling stores and opening new ones.
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City officials estimate that those two provisions, in addition to higher rental payments to the city from Cordish, will come close to covering the $1.4 million in annual debt service on the bonds that will finance the Three Light garage.
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Board members voted to transfer $2.71 million from the district's education fund reserves to cover the debt service payment on $33 million in bonds that were taken out in 2009.
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Unofficials results from Cook County Clerk David Orr 's office showed that about 72.4 percent of Kenilworth voters who cast ballots voted to increase the debt service base from $600,000 annually to $1 million.
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.
First Known Use of debt service
1929
Financial Definition of DEBT SERVICE
debt service
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
Law Dictionary
debt service
legal Definition of debt service
: the amount of interest and principal payments due annually on long-term debt
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