The article explores the best combination of bank and market debt for companies, focusing on how banks can renegotiate debts. It shows that weaker companies rely on bank debt, while stronger ones use a mix of bank and market debt, with bank debt having priority. Small firms usually stick to bank debt, while larger firms prefer a mix. The study also explains why bank debt is senior and why firms shift from bank debt to a mix over time. The findings suggest that optimal debt contracts prioritize absolute priority, and violations of this can be costly for different types of creditors.