The Alaska Railroad Corp. spent years fixing the crumbling pilings supporting the 60-year-old cruise ship dock and terminal building at the Port of Seward, before it came up with a novel risk-transfer approach to fund a replacement.
It took nearly a decade for the railroad to find the right partners to craft the deal involving the $111.9 million port revenue bond issuance that won The Bond Buyer's
The financing involved partnerships with Royal Caribbean Group; The Seward Group, an Alaska-based private developer; the state government; and the city of Seward. The finance team emphasized the deal's innovative finance plan, rigorous marketing, and support for long-term economic growth in Alaska in its award nomination.
"Before this deal came together, it had been plaguing us for 10 years, how to get this deal done," said Bill O'Leary, chief executive officer of the Alaska Railroad Corp. "This dock was just in really bad shape."
The self-supporting railroad corporation, entirely owned by the state government, can issue tax-exempt debt, but it rarely does, O'Leary said.
Alaska is the fifth largest cruise region in the world, capturing 5% of the global cruise market and depends on tourism for jobs and economic growth in the state, according to the nominating statement. The port of Seward, owned by the railroad corporation, is a critical piece of the Alaska cruise tourism market, but needed substantial capital reinvestment in its facilities to ensure long-term growth.
Seward, situated at the head of Resurrection Bay on the Kenai Peninsula, is a major cruise port; the southern terminus of the Alaska Railroad; and serves as a gateway to Kenai Fjords National Park. Seward and nearby Whittier are at the northern end of the popular one-way cruise route from Vancouver, British Columbia. Seward is 125 miles from Anchorage, the state's largest city.
In March 2024, the railroad, Royal Caribbean Group and The Seward Company announced they had formed a partnership to design and build a new $137 million world-class cruise terminal and pier, scheduled for completion by April 2026.
"The existing dock has driven economic activity for decades, but it was at the end of its useful life," O'Leary said.
In 2024, more than 205,000 cruise ship guests came through Seward, many of them combining an Alaska land vacation with their cruise.
The cruise ship business was suspended during pandemic-driven closures in 2020 and into 2021. Alaska's cruise business quickly returned to pre-pandemic numbers in 2023 hitting 1.65 million passengers, and surpassed that in 2024 with 1.7 million, according to Cruise Lines International Association Alaska.
Around 65% of summer tourists reach Alaska via a cruise ship and direct visitor spending totals nearly $2.2 billion annually, excluding fares paid for airline tickets and cruise tickets, according to CLIA data.
The facility will replace the aging fixed dock built in 1965 with a state-of-the-art floating double berth pier, a 60,000 square foot cruise terminal and a portable shore-power system to accommodate more and bigger ships.
"Necessity is the mother of invention and that's how this came to pass," O'Leary said. "What helped it come together is the railroad is the motivated owner of the facility and understood the importance to the state's economy of getting the job done."
Next, "the primary user, the Royal Caribbean cruise line, has clearly stated a preference for wanting to come into Seward and was willing to stretch the outer boundaries in its 30-year commitment," O'Leary said. "And, the developer was flexible, because they could see the benefit of putting this together."
What O'Leary said he's most proud of is how it limits the risk profile for both Seward and the railroad, which is a self-funded enterprise that operates with no state support.
It runs a passenger train business moving tourists like those arriving and departing Seward, as well as year-round freight service over its 683 miles of track.
In order to issue bonds for the Seward terminal, the railroad corporation
The financing approach involved having The Seward Group obtain interim financing to fund construction and the Alaska Railroad purchase the project with bond proceeds only after substantial completion, which minimized construction risk. The financing is also backed by railroad corporation equity and a pier usage agreement with a 30-year commitment of 140,000 passengers annually from the Royal Caribbean Group, the dock's most frequent user.
"Alaska isn't typical and neither was this structure," said Hope Scarpinato, a managing director and co-lead of PFM Financial Advisors transportation practice and the railroad's municipal advisor.
"The risk transfer achieved by structuring the transaction as a purchase is innovative and could be replicated by other issuers when circumstances allow," Scarpinato said.
"It reflects the same creativity and flexibility that informed the broader deal," she said.
"Including the extraordinary mandatory redemption provision to mitigate bond investors' exposure to construction risk was also a key part of credit consideration," Scarpinato said. "That protection, combined with a security package limited to project revenues, delivered clarity to investors while still giving the railroad the flexibility it needs."
The finance team conducted a two-week investor outreach involving 18 one-on-one virtual meetings with investors that generated over $360 million in orders, according to the award nomination. The robust demand enabled the railroad to reduce yields by up to 9 basis points at pricing in August, securing a 5.62% true interest cost for the tax-exempt deal, which is subject to the alternative minimum tax, according to the finance team.
"Investors indicated a willingness to understand a unique structure when presented with a clear, digestible credit story," Scarpinato said.
Assured Guaranty insured all of the maturities with the exception of the 2028 and 2029. S&P Global Ratings assigned its BBB-minus underlying rating and its AA rating for bonds wrapped by Assured.
Eckert Seamans was bond counsel and Dorsey and Whitney was special counsel to the corporation.
