Recent Examples of debt service from the Web
Total debt service is $438 million — a figure Cal doesn’t expect to pay off for a century.
With the convention center, revenue also was used to pay debt service on bonds sold to finance the original construction of the convention center as well as a $22 million expansion completed in the summer of 2011.
Since, then Kushner Cos. and Vornado have only paid debt service on the senior debt.
The tax would help pay the debt service on the $300 million project.
State Fair would be paying debt service on … nothing.
The long-term financing to pay for the new vehicles fits into the town’s debt service at a time when older debts will be paid off and erased.
The cuts were made in hopes of averting — at least temporarily — the closure of the library, which is in dire straits due to a combination of record-low tax collection rates and substantial debt service on a $6 million bond issue.
The entities' funding will largely go towards the debt service on the project.
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.
Financial Definition of 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.
Learn More about debt service
Seen and Heard
What made you want to look up debt service? Please tell us where you read or heard it (including the quote, if possible).