• Refers to a relationship which obligates a borrower to pay interest and principal. The terms are often in writing and define the relationship. Indentures and mortgage notes are common types of these written instruments of indebtedness.

• Debt is a higher priority claim (in liquidation') compared to equity. These payments must be made, otherwise the firm will be subject to court-ordered bankruptcy or liquidation. It is also called leverage.

• Money borrowed.


Follow this link for all the terms related to debt.

 Embedded terms in definition
 Referenced Terms
 Ability to service debts: The ability of a firm to make the contractual payments required on a scheduled basis over the life of a Debt.

 Advanced refunding: Is the technique of replacing one bond issue by another. This typically occurs when a municipality can borrow at more favorable terms than the outstanding issue. The new issue's proceeds are used to purchase government obligations which are held in escrow. The income and/or appreciation of these government securities is then used to service the outstanding Debt. The escrow may be held until the first call date or maturity of the initial bond issue. If the escrowed funds retire the original issue at the first call date then the issue is pre-refunded. This retirement and replacement process of debt is also known as defeasance.

 Agency cost view: The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, Debt financing.

 Aggressive funding strategy: A funding strategy under which the firm finances its seasonal needs, and possibly some of its permanent needs, with short-term Debt and its permanent needs with long-term debt.

 Amortization: The systematic expensing of a portion of the cost of a fixed asset against sales revenue.(1) The paying off of Debt in regular installments over a period of time. (2) The deduction of certain capital expenses over a specific period of time.The repayment of a loan by installments.Is the periodic pay down of principal. This is a common feature of most mortgages. Amortize also refers to the accounting write down or reduction in an intangible asset. This creates a charge against income. Amortization can also refer to the reduction in the cost basis of a bond purchased at a premium to par. Sometimes, amortization is used as a synonym for depreciation or other write down of an asset or liability. In the later capacity it tends to apply to intangible assets. See Interest Impact on Installment to Amortize or Amortization.The process of reducing a Debt through installment payments of principal and interest.

 Related Terms

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