We develop a stylized capital structure model in which firms endogenously determine investment, debt face value, and debt type. Loans impose higher ex-ante intermediation costs than bonds but lower ex-post liquidation costs in default, incentivizing short-termism and risk-taking. Firms with fewer asset endowments optimally prefer loans and operate closer to default. Due to greater exposure to downside risk, these firms exhibit higher expected equity returns and more negative delta-hedged option returns. Empirical evidence supports these predictions, aligning with rational pricing of debt structure news and reinterpreting the “new issues puzzle” as risk compensation rather than mispricing.