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 additional hookups and debt service fee revenue have covered the city’s debt obligations and provided an additional $564,200 which Martin is proposing to use to start tackling replacement of the city’s aging water lines.
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That will include rising costs for health care, debt service, insurance and collective bargaining agreements.
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According to Rent Board officials, the vast majority of operational and maintenance pass-through petitions are attributable to increased property taxes and debt service, which usually arise from the sale of a property.
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Annual payments on the bond can be covered through a debt service tax levy.
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The $132 million financing package includes an $8 million debt service reserve fund, and the $1 million cost of selling the bonds.
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Harvey has already defaulted on eight debt service payments over the past two years.
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Traditional bond financing of the project would result in additional debt service payments of at least $25 million a year.
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The increase chiefly is driven by a $42 million increase in debt service, related mostly to the issuance last year of $1 billion in pension obligation bonds as part of the mayor’s pension reform package.
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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