SecProbe.io

CORRESP
1
filename1.htm

corresp

November 1, 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 October 4, 2005 from Mr Larry Spirgel of the Securities and
Exchange Commission (the “Commission”) addressed to Viatel Holding (Bermuda) Limited (the
“Company”) in respect of its Annual Report on Form 20-F for the year ended December 31, 2004 (the
“Form 20-F”). In light of the Commission’s comment set forth therein, we propose to revise the
disclosure relating to the Company’s “Impairment of Long-lived Assets” critical accounting policy
set forth in the MD&A of the Form 20-F to read in its entirety as follows:

“Impairment of Long-lived Assets

The Company reviews the carrying value of intangible assets subject to amortization and other
long-lived tangible assets to determine whether there has been any impairment of such assets and
the appropriateness of their remaining useful lives whenever events or circumstances indicate that
the carrying value may not be recoverable. Specific long-lived assets of the Company relevant for
such purposes include customer relationships acquired through the purchase of Cybernet and Netcom
which have a carrying value in the Company’s balance sheet of $2 million as at December 31, 2004,
and the Network assets which have a carrying value as at December 31, 2004 of $38 million.

To assess impairment of such assets the Company applies FAS 144, “Accounting for the impairment or
disposal of long-lived assets”. The Company tests for impairment by comparing the sum of the future
undiscounted cash flows expected to be derived from an asset or a group of assets to their carrying
value. If the carrying value of the asset or the group of assets exceeds the sum of the future
undiscounted cash flows, impairment is considered to exist, and an impairment loss measured by the
difference between the fair value and the carrying value of the relevant long lived asset or group
of assets would be recognised. The fair value of the asset or group of assets is generally
determined based upon an estimate of discounted future net cash flows to be generated by the asset
or group of assets.

The estimation of future cash flows and the determination of fair values for assets or groups of
assets requires the Company to make significant judgments concerning the identification and
validation of expected cash flows and, where applicable, discount rates. Such estimates contain an
amount of uncertainty which can have a material impact on the amount of any impairment;

Inbucon House, Wick Road, Egham, Surrey, TW20 0HR, UK. Tel: +44 (0) 1784 494 200 Fax: +44 (0) 1784 494 201
Viatel Holding ( Bermuda) Limited, Registered Office, Canon’s Court, 22 Victoria Street, Hamilton, HM12, Bermuda

similarly, actual results may differ from estimates due, in particular, to the economic,
technological and competitive environment in which the Company operates.

For the purposes of conducting impairment tests, operational cash flows are estimated using
assumptions relevant to the particular asset or group of assets and, where possible, in light of
both current and historic performance over prior periods. In particular:

    •

    Where a measurable trend has been established, cash inflows from existing services are
forecast based upon historical performance along with monthly growth rates in line with
those achieved over prior periods for which relevant data is available;

    •

    Where a measurable trend has not been established, estimates of future inflows are based
on current recurring revenues and the order “pipeline” relevant to the assets;

    •

    Cash inflows from new services or the other sales channels described in connection with
the New Viatel Business Plan (see “Item 4. Information on the Company. New Viatel Business
Plan”) are forecast based on good faith estimates of sales order value. In addition,
alternative customer profiles are modelled to test the level of assumed revenues for
reasonableness in the absence of historic market data;

    •

    Estimates of cash outflows relating to costs are typically based on current run rates;

    •

    Additional staff costs are included where additional sales heads or other staff
resources are required to meet revenue targets;

    •

    Estimates of cost reductions are based on reasonable assessment and, where indicated,
based on third party professional advice; and

    •

    Cash flows associated with future capital expenditure that would increase the service
potential of the relevant asset or group of assets are excluded.

The Network is structured operationally and for network resilience purposes as a single asset group
supporting the sales operations of the Company. Decisions about the management and exploitation of
the Network are made on a pan-European basis. U.S. GAAP 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. Accordingly, we have treated the
Network and related infrastructure assets as a single asset group for the purposes of assessing
impairment.

The impairment test applied to the Network as of December 31, 2004 is based on business cash flow
forecasts prepared in June 2005 for the period through December 31, 2008. In order to assess the
future cash flows for the remaining useful economic life of the Network, the remaining years are
based on the last year of the forecast, i.e. at zero percent growth.

Significant assumptions underlying the impairment test were:

    •

    An agreement with a third party whereby the Company would enter into a structured
transaction in respect of certain parts of the Network, under which the Company would
receive cash inflows from the third party in respect of the Network assets, such cash
inflows representing a proportion of the tax benefits realised by the third party. The
benefits attributable to such transaction are supported by draft heads of terms and
independent advice from a major accountancy firm.

    •

    A significant reduction in future costs relating to ROW charges in France, based on the
projected outcome of current litigation regarding such charges. See “Item 8. Financial
Information on the Company. Legal Proceedings”;

    •

    Cessation of rental payments in relation to a property in Paris, France arising out of a
lease termination which is currently the subject of litigation. See “Item 8. Financial
Information on the Company. Legal Proceedings”; and

    •

    Rent reductions in relation to certain property leased by the Company in the United
Kingdom.

The reduction in future costs in respect of ROW charges and rental payments in France are based on
external legal advice.

On the basis of these assumptions, since the undiscounted cash flows were greater than the carrying
value of the Network as at December 31, 2004, no impairment is necessary.

To the extent that any or a combination of the foregoing assumptions were to prove inaccurate, this
could have a material impact on our impairment calculation and result in an impairment. The
following risks in this regard are highlighted:

    •

    The Company may be unable to obtain further debt financing from its Investors or other
third parties. While management consider the expectations of such funding to be reasonable
at this time, any absence of such continued financial support would likely prevent the
Company from being able to generate the forecast cash flows, inevitably leading to an
impairment in the carrying value of the Network;

    •

    A further deterioration in conditions within the European telecommunications market
which could adversely impact assumptions used in cash flow calculations;

    •

    An adverse decision may be given in any of the current legal proceedings relating to
either the ROW costs or the termination of the French property lease. Although the legal
advice received is that a favourable decision in such proceedings is more likely than not,
any adverse decision could have a significant impact on impairment calculations dependent
on the extent of the adverse ruling”.

    Brian McArthur Muscroft

/s/Chief Financial Officer