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certain transactions with affiliates and certain mergers and acquisitions. The
Senior Credit Facility also requires Renaissance Media to maintain specified
financial ratios and to meet certain financial tests. See "Description of the
Notes" and "Description of Certain Indebtedness." The ability of Renaissance
Media to comply with such covenants and restrictions can be affected by events
beyond its control, and there can be no assurances that Renaissance Media will
achieve operating results that would permit compliance with such provisions.
The breach of any of the provisions of the Senior Credit Facility would, under
certain circumstances, result in defaults thereunder, permitting the lenders
thereunder to prevent distributions by Renaissance Media and to accelerate the
indebtedness thereunder. If Renaissance Media were unable to pay the amounts
due in respect of the Senior Credit Facility, the lenders under the Senior
Credit Facility could foreclose upon any assets pledged to secure such payment
or otherwise prevent the distribution of funds by Renaissance Media. In such
event, the holders of the Notes might not be able to receive any payments
until the payment default was cured or waived, any such acceleration was
rescinded or the indebtedness under the Senior Credit Facility was discharged
or paid in full. Any of such events would adversely affect the Obligors'
ability to service the Notes, including but not limited to the Obligors'
ability to pay cash interest on the Notes.
OPERATIONS AS AN INDEPENDENT COMPANY
Prior to the Acquisition, the Systems were operated by Time Warner since
January 4, 1996 and prior to such time were operated by CVI from September 12,
1986 (in the case of the Tennessee System) and December 31, 1988 (in the case
of the Louisiana Systems). No financial or operating history of the Systems as
an independent entity and not as part of a large multiple cable television
system operator ("MSO") is available for potential purchasers to evaluate.
Time Warner manages certain programming for the Company, although the Company
has lost certain programming discounts that were available to the Systems when
they were part of a large MSO. In addition, as a result of the purchase
accounting adjustments arising in connection with the Acquisition, the
Company's annual depreciation and amortization charges will increase. The
above factors, together with increased interest expense associated with the
Notes and the Senior Credit Facility, will have a material adverse impact on
the Company's results in the future. See "Pro Forma Financial and Other Data."
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast
programming, newspapers, movie theaters, live sporting events, online computer
services and home video products, including videotape cassette recorders.
Because the Company's franchises are non-exclusive, there is the potential for
competition with the Systems from other operators of cable television systems,
including systems operated by local government authorities, and from other
distribution systems capable of delivering programming to homes or businesses,
including direct broadcast satellite ("DBS") systems and multichannel
multipoint distribution service ("MMDS") systems. Additionally, the FCC
recently adopted new regulations allocating frequencies in the 28 GHz band for
a new multichannel wireless video service called local multipoint distribution
service ("LMDS") that is similar to MMDS, and the FCC initiated spectrum
auctions for LMDS licenses in February 1998. In recent years, there has been
significant national growth in the number of subscribers to DBS services.
Subscribership to MMDS also is increasing and can be expected to grow.
Additionally, recent changes in federal law and recent administrative and
judicial decisions have removed certain of the restrictions that have limited
entry into the cable television business by potential competitors such as
telephone companies, public utility holding companies and their subsidiaries.
During 1997, the Jackson, Tennessee Public Utility Department, which as of
March 31, 1998, encompassed approximately 34,000 homes passed by the Tennessee
System, and approximately 23,000 basic subscribers (excluding bulk
subscribers), representing approximately three-quarters of the subscribers of
the Tennessee System, undertook a feasibility study with respect to providing
cable television service to customers in its service area and reportedly
concluded that a competitive cable television could be feasible under certain
circumstances. During its 1997-1998 session, the Tennessee legislature