* UK spending cuts will trigger debt restructurings
* Public service companies like Connaught vulnerable
* Care homes, health groups to be hit, say experts
By Sarah White
LONDON, Oct 8 (Reuters) - First the good news: a looming period of austerity and UK spending cuts will likely not trigger nearly as many insolvencies as in the recession of the early 1990s. Trouble is, this may prove a only a thin silver lining.
Firms exposed to public services will be hit hard as the knife falls and many will face major rationalisations even if they avoid the last-resort option of administration, restructuring experts said this week.
"There are just many, many more (restructuring) tools available," Philip Davidson, global head of restructuring at KPMG, said at the Reuters Restructuring Summit this week.
"One of the trends during this recession ... is that lenders have chosen not to use insolvency to recover the value of assets and have chosen to go down the route of financial restructuring."
Davidson, who said the bulk of KPMG's restructuring fee pool was generated in Britain, where another wave of such deals was brewing, added that insolvencies were still likely to rise.
The accountancy firm was last month appointed administrator to the social housing unit of Connaught, a property maintenance firm whose demise caught the public eye.
Connaught's failure was not necessarily linked to cuts, Davidson said, but added it had the hallmarks of firms likely to suffer when austerity measures start hitting home.
"Had Connaught not had its very particular problems, it's very likely that it would have suffered as a result of those cuts anyway and would have had to have done something very significant to its cost base ... and to its structure," he said.
CARE HOMES UNDER PRESSURE
More restructuring work will be required as austerity measures kick in, several other experts said at the Summit held at Reuters offices in London and New York.
"All of those firms that feed off government contracts -- the support services sector -- are in for a tough year," said Matthew Prest, managing director at investment bank Moelis & Co.
New contract discussions with local councils across the country will be "extremely tough", leaving care homes and health-related companies particularly vulnerable, he said.
With occupancy rates at debt-laden care homes falling as spending constraints take effect, the sector has already been through some complex restructurings, including a 600 million pound ($953 million) debt deal by Four Seasons Health Care last month.
And as spending cuts begin to bite, the return to health of banks could ironically add to a rise in restructurings.
Increased profits will help lenders make provisions for bad loans, meaning banks will be more able to take a hit on their troubled assets, either by selling or restructuring them.
The effects of austerity are being seen elsewhere in Europe too, especially where stringent spending cuts have already hit home. In Greece, banks' shifting attitude towards borrowers is far from the only debt restructuring trigger.
Changing consumer patterns -- with people using less petrol, or using their mobile phones less -- have made some Greek businesses vulnerable, said Simon Davies of Blackstone.
High-profile debt restructurings, like that of telecoms group Wind Hellas, are already underway and there are more to come across the region, Davies said.
"The restructuring cycle has taken a number of different forms, but ... it's getting busier again," said Davies. "Fundamentally, the issue is one of austerity." (Editing by David Holmes) ($1=.6296 Pound)