SecProbe.io

CORRESP
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corresp

September 8, 2005

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

    Re:

    Viatel Holding (Bermuda) Limited (the “Company”)

Form 20-F for the Year Ended December 31, 2004

File No. 000-50556 (the “Filing”)

Ladies and Gentlemen:

     We are in receipt of the letter, dated August 11, 2005 (the “Comment Letter”), from Mr. Larry
Spirgel, of the Securities and Exchange Commission (the “Commission”), addressed to the Company.
Set forth below are the responses of the Company to the comments set forth in the Comment Letter,
numbered to correspond thereto. All capitalized terms used, but not otherwise defined, herein
shall have the respective definitions assigned thereto in the Filing.

Form 20-F for the Year Ended December 31, 2004

Financial Statements and Notes

(2) Significant Accounting Policies

(d) Revenue and Cost of Sales, page F-l0

    1.

    You state that “the Company records communication services revenues as earned at the time
services are provided.” In light of the various products and services you disclosed on pages
26-29 within the wholesale and retail segments, expand the revenue recognition policy
disclosure to explain your revenue earning processes for each of the products and services and
advise us. Refer to SAB 104.

    Although we offer a number of different telecommunication products and services to our
customers as detailed in pages 26-29 within the Form 20-F, in both the wholesale and retail
segments, the revenues earned from these services fall into one or more of the following
categories:

    •

    Non-recurring revenues relating to delivery of equipment and installation thereof

    •

    Recurring revenues for ongoing telecommunications connectivity and operating and maintenance services

    Non-recurring revenues are considered to be separable, pursuant to SAB 104 and more
specifically to EITF 00-21, ‘Revenue Arrangements with multiple deliveries’, because the
delivered item(s) has value to the customer on a standalone basis, there is objective and
reliable evidence of fair value of the undelivered element and the amounts paid for the
delivered item(s) is non-refundable. Accordingly, such revenues are recognised in full

VTL (UK) Limited, Registered Office, Inbucon House, Wick Road, Egham, Surrey, TW20 0HR, UK.

Registered in England and Wales No. 04287100 Tel: +44 (0) 1784 494 200 Fax: +44 (0) 1784 494 201

    upon delivery of the equipment and completion of installation which is deemed to be the date
of commencement of the provision of the interconnectivity service.

    Recurring revenue is recognised rateably over the life of the contract, which is typically
for one year or more.

    In light of the SEC’s comment we propose to clarify the Company’s revenue recognition policy
in an amended filing of our 2004 20-F by deleting the following existing wording:

    [ Page F-12 ]

    (d) Revenue and Cost of Sales

    The Company records communication services revenue as earned at the time services are
provided. The related cost of communication services is reported in the same period.

    Revenues relating to operations and maintenance charges are recognized over the period
in which the service is provided. Deferred revenue also includes amounts invoiced for
standby maintenance applicable to future periods.

    Operations and maintenance costs are expensed over the period to which the expenditure
relates.

    and replacing the above wording with the following:

    (d) Revenue and Cost of Sales

    The Company derives its revenue from the sale of Internet-related goods and services,
specifically the sale of Internet connectivity services and other Internet value-added
services, such as hosting, security and IP VPN. The revenues earned from these services
comprise non-recurring revenues relating to delivery of equipment and installation thereof
and recurring revenues for ongoing telecommunications connectivity and operating and
maintenance services. The typical term of a contract for connectivity services is one year
or more.

    The Company applies the provisions of Staff Accounting Bulletin No. 104, “Revenue
Recognition.” The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the fee is fixed or
determinable and collection of the resulting receivable is reasonably assured. The Company
uses either a purchase order or a customer agreement as evidence of an arrangement.

    Revenue from the delivery of equipment and installation thereof is recognized upon delivery
of the equipment and completion of installation, which is deemed to be the date that
Internet connectivity services commence. Revenues for Internet connectivity and operating
and maintenance services are recognized as earned over the contractual term. When the
Company’s services are bundled in a customer arrangement, the related fee is allocated to
the multiple elements of the arrangement based on objective evidence of fair value.

    When the customer arrangement dictates that payments are made prior to service delivery, the
Company records the advance receipt of payment as a credit to the balance sheet within the
deferred revenue account. When a customer pays a non-refundable fee in advance and
subsequently cancels service before the end of the contract term, the Company recognizes the
remaining deferred revenue as revenue with the statement of operations at the time the
service is terminated.

(h) Property and equipment page F-13

    2.

    In view of your significant recurring losses from 2002 to 2004, it is unclear why you have
not recognized an impairment in the value of your communication systems and network
infrastructure assets. Please explain to us your full compliance with the SFAS No. 144
guidance for the timely recognition and measurement of an impairment loss. In your response
please identify for us your SFAS 144 asset groups and explain how you assigned assets and
liabilities to these groups. Also,

2

    please provide us your calculations and describe for us your assumptions to the extent
necessary so that we may clearly understand management’s analysis and the basis for its
conclusions.

    The current communication systems and network infrastructure assets (the “Network”) were
recorded at fair value in June 2002 as a result of applying fresh start accounting upon the
Company’s emergence from Chapter 11. The original cost of the Network was approximately $1.3
billion and the value assigned to the Network upon emergence was $35 million. This value was
calculated as the difference between the reorganization value of the Company and the net
monetary assets as at 7 June 2002. The reorganization value was computed using a discounted
analysis of future cash flows set out in the Company’s ‘Plan of Reorganization’.

    The Plan of Reorganisation forecast losses for the subsequent three years following
emergence. The Company’s historical operating losses since emergence did not therefore
represent to us an event or change in circumstances that the carrying amount of the Network
may not be recoverable. The carrying value of the Network is considered when the value of
the entire business is reviewed by both the management and by the Investors; such reviews
occur on a regular basis. Furthermore, we believe the continued investment in the Company by
the Investors (as evidenced by both the April 2004 Financing and the June 2005 Financing)
supports the carrying value of the Network. The Company has therefore historically taken the
position that there is no indication that the Network is impaired. In light of the SEC’s
comment, we have completed an impairment calculation pursuant to SFAS 144, which calculation
(as described below) supports the Company’s position that the carrying value has not been
impaired.

    Paragraph 10 of SFAS 144 requires that long-lived assets and related liabilities be grouped
at the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. The Network is structured operationally and for
network resilience purposes as a single asset group supporting the sales operations of the
Group. Decisions about the management and exploitation of the Network are made on a
pan-European basis. Accordingly, we have treated the Network and related infrastructure
assets as a single asset group for the purposes of SFAS 144.

    The impairment test for the Network as of 31 December 2004 has been based on the business
cash flow forecasts presented to the Board and the Investors in June 2005. These forecasts
included cash flows for the next three and a half years. In order to assess the future cash
flows for the remaining useful life of the Network, the remaining years were based on the
last year of the forecast i.e. 0% growth. Even with the zero growth assumption the
undiscounted cash flows were significantly greater than the carrying value of the Network at
31 December 2004, indicating that no impairment was necessary.

    Management continues to review the value to the Group of the Network in the light of
emerging market trends and the ongoing review of Group strategy.

(4) Amounts receivable from exchange contracts, page F-19

    3.

    We note your disclosures in footnotes (2)(l), (4) and (17). It is unclear to us why you have
recorded a receivable at December 31, 2004 that apparently includes the notional amount of the
exchange contract rather than the fair value of the contract, as would be required under
paragraph 17 of SFAS No. 133. Please advise us, in detail, and explain to us the terms of the
US $10 million exchange contract and your accounting for it. So that we may clearly understand
your accounting, refer in your response to the specific GAAP literature that supports your
accounting and provide us all of your journal entries recorded in connection with the exchange
contract.

3

    Viatel entered into three foreign currency option transactions with Morgan Stanley in May
2004. The terms of the transactions are summarised in the table below:

    Trade Date

    12-May 04

    12-May 04

    12-May 04

    Buyer

    Morgan Stanley

    Morgan Stanley

    Morgan Stanley

    Seller

    Viatel

    Viatel

    Viatel

    Currency Option Style

    European

    European

    European

    Currency Option Type

    Put GBP/ Call USD

    Put GBP/ Call USD

    Put GBP/ Call USD

    Put Currency Amount

    GBP 3,325,020.78

    GBP 3,337,969.40

    GBP 5,591,277.61

    Call Currency Amount

    USD 6,000,000

    USD 6,000,000

    USD 10,000,000

    Strike Price

    1.8045

    1.7975

    1.7885

    Expiration Date

    29-Jun-04

    29-Sep-04

    31-Dec-04

    Expiration Time

    10:00 am est

    10:00 am est

    10:00 am est

    Settlement Date

    01-Jul-04

    01-Oct-04

    04-Jan-05

    Premium

    Zero Cost

    Zero Cost

    Zero Cost

    Premium Payment Date

    14-May-04

    14-May-04

    14-May-04

    The Company exercised its option on all three contracts and the first two were settled
during the year ended 31 December 2004. With respect to the third contract, the option was
exercised on 31 December 2004. The $10m was paid to Morgan Stanley on 31 December 2004 and
Viatel Holding (Bermuda) Limited received a cash balance of £5,591,278 on 5th January 2005.

    We do not believe that paragraph 17 of SFAS 133 is relevant because the contract had been
completed on 31 December 2004 and therefore was not a derivative at year end. We concluded
that the asset should be classified as a receivable because the cash was not repayable on
demand as it was not returned by Morgan Stanley until the 5th January 2005, and therefore
did not meet the definition of cash pursuant to SFAS 95. Furthermore, it did not meet the
definition of a cash equivalent, pursuant to paragraph 8 of SFAS 95 because it had an
original maturity date of greater than 3 months.

    The journal entries to reflect the accounting for this exchange contract were as follows.

    On 31 December 2004

    Dr Amounts Receivable from Exchange Contracts

    $
    10,551,571

    Cr Cash

    $
    10,000,000

    Cr Foreign Exchange gain

    $
    551,571

4

    4.

    Indicate in the caption on the face of your balance sheet that the amount receivable from
exchange contracts is with a related party, pursuant to 4-08(k) of Regulation S-X.

    Although the details of our exchange contracts are included in Note 17 Related Party
Transactions, we have revised our balance sheet caption to “Amounts receivable from exchange
contracts, related party” as requested and highlighted below:

    [ Page F-4 ]

    31 December

    31 December

    2004

    2003

    ASSETS

    Current Assets:

    Cash and cash equivalents

    22,820

    30,378

    Restricted cash

    486

    —

    Amounts receivable from exchange contracts, related party

    10,552

    —

    Accounts receivable (net of allowance for doubtful debts of $1,567, 2003 — $1,648)

    3,167

    4,026

    Amounts receivable from bankruptcy estates within one year

    5,320

    7,257

    VAT receivable

    3,676

    3,469

    Prepaid expenses and other current assets

    5,845

    6,427

    Total current assets

    51,866

    51,557

    Property and equipment, net

    37,986

    39,899

    Intangible assets, net

    2,198

    3,330

    Other assets

    —

    96

    Deferred financing costs

    7,630

    —

    Total assets

    99,680

    94,882

    LIABILITIES AND SHAREHOLDERS’ EQUITY

    Current Liabilities:

    Accounts payable

    9,322

    5,135

    Accrued administrative and priority claims

    —

    1,868

    Accrued expenses

    7,937

    9,209

    Accrued interest

    1,955

    —

    Accrual for French VAT payable

    —

    6,076

    Deferred revenue

    4,626

    3,853

    Deferred income tax liability

    47

    —

    Future performance obligations

    —

    4,600

    Other current liabilities

    3,784

    2,374

    Total current liabilities

    27,671

    33,115

    Long—term liabilities:

    Deferred income tax liability

    —

    304

    Convertible loan notes (Related Party — $32,167)

    36,617

    —

    Total long—term liabilities

    36,617

    304

    Total liabilities

    64,288

    33,419

5

    5.

    In light of the exchange contracts, we question the representation on page F -15 that “the
Company does not have any derivative instruments at December 31, 2004 and did not enter into
any activities resulting in derivative instruments during the year then ended other that the
embedded derivatives related to the put option on the loan notes.” Please revise your
disclosure or advise us.

    We have added a reference to the exchange contract on page F-15 of the amended filing as
underlined below:

    [ Page F-15 ]

    (o) Financial Instruments, Derivatives and Concentration of Credit Risk

    At December 31, 2004 the Company’s financial instruments included cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and convertible loan notes (the
“Existing Notes”). It is not practicable to estimate the fair value of the convertible loan
notes as a quoted market price is not available. As at 31 December 2004, the face value of
the Existing Notes was US$52.3 million and the face value of the Existing Notes issued on 15
July 2004 in lieu of interest was US$1.0 million. These Existing Notes have a fixed interest
rate of 8% which is payable semi annually. The Existing Notes mature on 21 April 2014. The
fair values, at December 31, 2004 and at December 31, 2003, of cash and cash equivalents,
receivables, accounts payable and accrued interest approximated their carrying values
because of the short—term nature of these instruments.

    Financial instruments that potentially subject the Company