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 interest and sinking fund is commonly known as the district’s debt service rate. — Chris Shelton, Houston Chronicle, "Humble ISD makes major tax-rate cut after bump state funding," 11 Sep. 2019 Spending on children as a share of the federal budget is also expected to shrink over the coming decade, crowded out by both debt service and spending on the elderly. — Catherine Rampell, The Denver Post, "Rampell: We’re in the midst of Trump’s War on Children," 8 Sep. 2019 That number would increase to $5 million per year — or eight times the annual debt service on the bonds. — Frederick Melo, Twin Cities, "Ford but without the tax subsidy: What you need to know about Hillcrest, St. Paul’s next big redevelopment site," 22 July 2019 The $15 million proposal faces another challenge: afull council vote to approve the debt service in October. — Cortlynn Stark, Indianapolis Star, "It's been 40 years, but Indianapolis firefighters might finally have their own training facility," 13 Sep. 2019 As of late June 2018, the school system still has $54.3 million in debt service, the analysis showed. — Erin B. Logan, baltimoresun.com, "Howard County Council bill would significantly hike fees on developers to help build schools," 23 Aug. 2019 As part of the agreement, the city agreed to levy and collect special assessments annually from the parts of the property that benefited from the garage project, in amounts sufficient to pay the debt service charges and administrative expenses. — cleveland.com, "University Heights mayor says process of redeveloping University Square has begun," 3 July 2019 The homestead exemption will cost the city $5.8 million a year in total revenue, $3.6 million from the general fund and $2.2 million from the debt service fund. — Gilbert Garcia, ExpressNews.com, "San Antonio homestead exemption flies in the face of fiscal reality," 26 June 2019 The district’s budget will consist of $324 million for its general fund, $64 million for its debt service and $27 million for child nutrition. — Mayra Cruz, Houston Chronicle, "Spring ISD’s 2019-2020 budget includes teacher raises up to $3,250," 14 June 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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15 Oct 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