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October 1, 2009 2:57 PM

McKool Smith Breaking into the Bankruptcy Biz

Posted by Brian Baxter

HughRay

Rising Texas firm McKool Smith added to the list of major moves it's made lately, announcing on Thursday that it had hired Andrews Kurth bankruptcy chair Hugh Ray (right) and three other partners to start a bankruptcy practice.

Founding partner Mike McKool says the firm had been looking to start a bankruptcy practice for some time.

"Our growth has always been very targeted," he says. "And we saw a significant bankruptcy cycle that would be longer and deeper than anything I've seen in my 36-year career."

When McKool started asking people at business lunches and dinners whether they knew a Texas bankruptcy lawyer with a strong East Coast practice, Hugh Ray's name kept coming up.

"Hugh is very loyal to [Andrews Kurth], but he saw this as an opportunity to increase his practice and have more opportunities in the bankruptcy sphere than he has in the past," McKool says.

Andrews Kurth has the largest bankruptcy practice in Texas and is among the ten largest in the country. Yet the firm's practice chair is leaving after 41 years because of TARP-created conflicts. Ray, who represents corporate clients in bankruptcy, found that banking consolidation under TARP was limiting the number of cases he could take on. 

As large financial institutions like Lehman Brothers, Washington Mutual, and Merrill Lynch disappeared or were absorbed by larger competitors, the pool of banks involved in Chapter 11 cases grew smaller.

"A few years ago there were a couple dozen big financial institutions, but now there are fewer than ten and Andrews Kurth represents every single one of them," Ray says. "I don't have to sue Bank of America or Goldman Sachs, but they need to know that I can."

In the past six months, Ray has received waiver letters from Andrews Kurth's banking clients stating he can't do any debtors' or creditors' work that potentially puts him in an adverse position to them. That restricts Ray from representing many companies in bankruptcy, a process that requires battling (and litigating) with lenders over financing. 

"If that's the case, I might as well just sit at home," he says. "I needed to find a place with more than 100 lawyers that was good enough to take on the big boys and not represent them."

McKool, a smaller firm that focuses on litigation, fit the bill. The 116-lawyer firm doesn't represent the big banks, so Ray won't be restricted by as many conflicts of interest. And hiring a Chapter 11 veteran like Ray--who once served as local counsel to Enron--will help McKool break into the close-knit bankruptcy community.

MikeMcKool

"We've been in the beauty contests and gotten some of the litigation," says McKool (left), noting that the firm served as litigation counsel to Enron's unsecured creditors' committee. "But we've never been inside the bankruptcies on the debtors' or creditors' side."

Ray, who is admitted to the New York Bar, will continue to have an office in Manhattan at McKool. He expects to split his time between New York, Houston, and bankruptcy hot spot Delaware. And he's not worried that the current wave of business bankruptcies will break anytime soon.

"There's a time lag between the economic failure and bankruptcy court filings, which we're seeing right now," he says. "My phone has been ringing off the wall and it'll be nice to finally be able to say, 'Yes.'"

Andrews Kurth bankruptcy partners Peter Goodman in New York and Paul Moak in Houston are also moving to McKool, along with Ray's son, Hugh III, a bankruptcy partner with Houston firm Weycer, Kaplan, Pulaski & Zuber. (Jim Wilson from Partners Legal Search was the legal recruiter on the move.)

According to Am Law 200 financial data, 362-lawyer Andrews Kurth had gross revenues of $266 million and profits per partner of $905,000 last year. Because McKool generates a significant portion of its revenue from contingency fees, the firm does not qualify for our rankings.

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