Long-term debt consisting of probably future sacrifices of economic benefits arising from present obligations that are not payable within the operating cycle of the business, or within a year if there are several operating cycles within one year. Examples of fixed liabilities, or long-term liabilities, include bonds payable, long-term notes payable, mortgages payable, pension obligations, and lease obligations. Long-term debt represents a somewhat permanent method of financing growth and is often used to increase earnings whenever a larger rate of return can be earned on the borrowed funds than is paid out of after-tax interest (leverage). Typically, long-term creditors have no vote in management matters and receive a stated rate of interest. A distinction is usually made between long-term debt and equity financing. A debt instrument typically has a maturity date for the face value (principal amount) to be repaid to the lender.
Long-term debt is often subject to covenants or restrictions for the protection of lenders. Bond indentures and note agreements are often used to reflect these covenants or restrictions.
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