How to choose the appropriate Debt Instrument?

Good question. It took me a while to understand the concept behind different types of debt and equity financing. From a firm's perspective, it would rather have as much unsecured debt as possible. Think about it, why would you want to colladerize your inventory, AR's, Fixed Assets, etc? However, getting creditors/investors to lend you money without any tangible backing (besides covenants), means that you have to at least be an investment grade firm.

Also, a firm has to consider it's current capital structure. Although debt is generally cheaper to aquire than equity, a firm may not have enough money to cover its interest payments year-over-year. When you get into the specifics of bond-offerings, term loans, revolvers, ABL, and other debt instruments, a firm generally analyzes a bunch of things.

For example, now we are seeing a lot of firms entering into interest rate swaps since rates are so low (thanks bernake). Or it may issue bonds instead of a term loan due to the strict covenants. Or instead of issuing common equity where an investor may require a high expected return (think CAPM), they may issue preffered shares with warrants, so it is not so "ëxpensive"