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Texas is experiencing exponential growth in the financial sector. The state has seen the announcement of its own homegrown stock exchange and the opening of branches of the major New York exchanges. Simultaneously, the Texas legislature has embarked on a campaign to make corporate governance in Texas business-friendly – codifying the business judgment rule, increasing the ownership threshold to bring shareholder derivative suits, and establishing the Texas business courts as a specialized venue for disputes.¹  Recently, Texas has targeted proxy advisors and the shareholder voting process, passing a law that would require advisors to disclose non-pecuniary reasoning for their voting recommendations. ²

For all the ink spilled and excitement expressed over the developments in corporate governance and issues affecting equity capital, little has been said about what Texas can do to take a leading role in debt capital, liability management, and leveraged finance. Leverage and debt capital play a key role in the development of business. How courts, boards and society at large view debt capital influences the rate of wealth creation. This article focuses on steps the courts, boards, and the legislature can take to make Texas a leader in debt capital and leveraged finance. 

Courts Must Be Prepared to Handle Complex Transactions

Traditionally, Texas courts and law have not been the top choice for complex capital arrangements.³  As a result, the state is losing out on being the cutting edge of corporate finance and leveraged finance.  For example, in the recent Serta and Mitel decisions, courts, applying New York law, were asked to rule on whether  “uptier”⁴  transactions designed to restructure each company’s existing debt were permissible under the terms of each credit agreement.⁵

While creating a hospitable state for corporate governance and equity capital is important, Texas should not allow its courts to sit empty while cases that affect the ability of companies to raise and restructure capital are being addressed outside of the state. The Texas business courts are an optimal forum for these disputes, but they must be ready for the complex arrangements that sophisticated parties wish to enter.⁶

The Written Terms of the Agreement Must Govern 

Loan agreements are governed by contract and contract law. The obligations, covenants and rights available to each party are governed by the written words of the contract. In the event of disagreement, the courts must be prepared to read and enforce the terms as written. When courts leave the four corners of the contract, the repayment risk that governs the economic relationship between the parties is heightened. 

Already in their short existence, the Texas business courts have shown that the written terms of the contract govern and that they will be enforced.⁷  The business courts must continue to build that reputation and acknowledge the sophistication of the parties before them. 

The Legislature Should Review Case Law Developments That Hinder Debt Capital

In addition to limiting repayment risk in the courts and reading contracts, the Texas legislature should take steps to facilitate debt capital deployment. While the creation of the Texas business courts is a huge step towards facilitating that goal, if these courts never have occasion to hear issues related to credit and liability management, the status quo will not change. 

One aspect that legislators should consider is lender liability and waivers of such liabilities. Lender liability encompasses a class of civil tort claims (i.e., breach of contract, duress, fraud, and breach of fiduciary duty) that can be brought against a lender. While rare, traditionally, New York courts have been seen as friendlier in recognizing these waivers. 

The legislature and courts must recognize that sophisticated parties entering into these agreements can fend for themselves and accept the consequences of waiving such claims. By leaving lenders open to such claims and not allowing mutually agreed waivers to stand, the law is hindering the ability of lenders to provide debt capital under Texas law. 

Borrowers Must Push for Texas Law 

Ultimately, even if courts and the legislature take steps to make Texas a lender-friendly state, borrowers must encourage their prospective lenders to make Texas law and Texas courts the governing law and venue of their agreements. New York has decades of case law and momentum behind it with respect to debt finance and liability management. As the nation’s largest banks and credit funds open large offices and expand operations in Texas, borrowers have new leverage to take advantage of these lenders’ on-the-ground support. 

Conclusion: Prosperity Through Efficient Deployment of Capital

Texas is experiencing a corporate renaissance and providing a competitive alternative to the nation’s existing financial centers. Texas can continue to build its advantage in the debt markets, liability management spaces, and leveraged finance spaces by promoting the efficient deployment of debt capital to the state’s growing roster of companies. In concert with encouraging the free deployment of debt capital, Texas must embrace the creative destruction inherent in capitalism and allow companies and their lenders the contractual freedom to restructure their balance sheet. Texas can only secure its spot as a financial hub by being a business-friendly state in both expansion and contraction cycles. 

¹M. Scott Barnard et al., Texas Enacts New Pro-Business Law to Expand Its Appeal as a Hub for Business Incorporations, AKIN (May 23, 2025), https://www.akingump.com/en/insights/alerts/texas-enacts-new-pro-business-law-to-expand-its-appeal-as-a-hub-for-business-incorporations; Senate Bill 29, 89th Leg. (TX. 2025).

²M. Scott Barnard et al., Texas Passes Landmark Law Regulating Proxy Advisors: What Companies Need to Know, AKIN (July 29, 2025), https://www.akingump.com/en/insights/alerts/texas-passes-landmark-law-regulating-proxy-advisors-what-companies-need-to-know; Senate Bill 2337, 89th Leg. (TX. 2025) (the enforcement of the law is currently under preliminary injunction (see Institutional Shareholder Services Inc. v. Paxton and Glass, Lewis & Co., LLC v. Paxton)).

³See Elisabeth de Fontenay, The $900 Millon Mistake: In re Citibank August 11, 2020 Wire Transfers (SDNY 16 February 2021), 16 CAP. MKT. J. 307 (2021); John F. Coyle, A Short History of the Choice-of-Law Clause, 91 U. COLO. L. REV. 1147 (2020). 

⁴An “uptier” is a type of liability management tool whereby a borrower issues new, higher-priority debt, typically at a discount and with better terms than the existing loans to some or all of its existing lenders in exchange for their existing loans.

⁵In re Serta Simmons Bedding, LLC, No. 23-20181, 2024 WL 5250365, *27 (5th Cir. Dec. 31, 2024); Ocean Trails CLO VII, et al. v. MLN TopCo Ltd., et al., No. 2024-00169 (N.Y. App. Div. 1st Dep’t Dec. 31, 2024).

⁶See In re Serta,  2024 WL 5250365, at *3. In a rare acknowledgment of the complexity of a case, the 5th Circuit declined to attempt to summarize their various holdings.  

⁷Primexx Energy Opportunity Fund, LP v. Primexx Energy Corp., No. 24-BC01B-0010, slip op. (Tex. Bus. Ct. Mar. 10, 2025).