As Restructuring Accelerates In Some Sectors, Texas Firms Gear Up For More

Bankruptcy work has been busier in some sectors than others in recent years, namely energy and retail. And that’s good news for Texas firms, which continue to add lawyers in this practice area.

Firms are noticing the uptick in bankruptcy work in Texas, according to a recent report, written by Altman Weil principal Eric Seeger after he talked in late summer with managing partners or COOs of 30 firms with up to 350 lawyers. “A number of firms said they had geared up for an onslaught of bankruptcy work that so far has failed to materialize—except in Texas, where all firms are busy with new bankruptcies,” Seeger wrote.

One such midsize firm is Gray Reed & McGraw, which has doubled the size of its bankruptcy team since the beginning of the year. The firm’s most recent addition is Dykema Gossett bankruptcy lawyer Aaron Kaufman in Dallas.

Kaufman, who had been a member at Dykema, joined Gray Reed as a partner Wednesday. The firm had five lawyers in the bankruptcy department at the end of 2019 after it hired partner Paul Moak in Houston. But with Kaufman, the lawyer count is now 10, said Jason Brookner, chair of the corporate restructuring and bankruptcy department.

Expanding the practice group has been a strategic goal for Gray Reed for several years, said Bookner, who joined the firm in 2013.

“Paul was really the first brick, the first building block, the first opportunity, and then we just got incredibly busy, and then opportunities to add more bricks really presented themselves,” Brookner said.

Gray Reed is not alone in seizing that opportunity. Since the coronavirus pandemic began, and numerous businesses across the country were forced to shut down, firms across the country have been adding bankruptcy and restructuring lawyers, sometimes in sizeable groups.

Low oil and gas prices coupled with the economic downturn have led to numerous bankruptcy filings in Texas, making work for lawyers in Texas.

According to the Oil Patch Bankruptcy Monitor, a report compiled by Haynes and Boone, energy producer bankruptcies through Aug. 31 are up 62% when compared with the same period in 2019.

Kraig Grahmann, the head of Haynes and Boone‘s energy finance practice, said it’s not surprising that bankruptcy filings in Texas have continued at a strong pace this summer, because of economic conditions.

“We fully expect that will be a lot more, as we start to barrel toward the end of the year. It will accelerate,” he said.

The majority of the 36 exploration and production company bankruptcies filed in 2020 through Aug. 31 have been filed in Texas, according to the Haynes and Boone report.

Grahmann said it’s been interesting to see that in addition to the energy company bankruptcies, a number of the big retail Chapter 11 petitions this year have been filed in Texas bankruptcy courts, providing more work for firms with bankruptcy practices. Those include Neiman Marcus, J.C. Penney, and Tailored Brands, the parent of Men’s Wearhouse.

Bookner, the head of the Gray Reed bankruptcy department, said the majority of the firm’s bankruptcy work is in Texas, and the firm’s “eyes are always open” in the hunt for more lawyers for the restructuring and bankruptcy practice. Hires in the bankruptcy department this year, in addition to Kaufman, include two associates and a counsel, and a third associate shifted full-time to the bankruptcy group from litigation, Bookner said.

Kaufman said he moved to Gray Reed because the firm is committed to the bankruptcy practice in Texas and building a “deep bench” of lawyers, which will allow him to expand his practice.

Just recently, Kaufman represented Dallas fitness chain Gold’s Gym in its COVID-19-related bankruptcy filing. With that Chapter 11 resolved—the operator of German fitness clubs bought the chain—Kaufman said it was a good time to make his move to Gray Reed.

He said a recruiter presented him with the Gray Reed opportunity, and his interest was piqued because he’s known Bookner for several years.

“A recruiter did reach out to me, but recruiters have been reaching out to every bankruptcy lawyer in Texas pretty relentlessly over the last couple of months,” he said.

When asked about Kaufman’s departure, Deborah Williamson, head of the bankruptcy, insolvency and creditors’ rights practice at Dykema, said in a statement, “Aaron Kaufman is an outstanding lawyer. His commitment to the practice of bankruptcy and clients will ensure his continued success. I hope we have an opportunity to work together on matters in the future.”