The wholesale corporate bond market is to be tested by the first issue of Basel III-compliant subordinated debt. Since the introduction in 2013 of a non-viability trigger for tier two subordinated bank debt issued by banks, subordinated debt issuance in Australia has been restricted to the retail market.On Monday, Bendigo and Adelaide Bank announced its intention to sell A$200 million or more of Basel III-compliant subordinated debt to institutional investors in the wholesale corporate bond market.The debt will have the typical 10 year, non-call five year maturity structure, subject to clearance by APRA, and will pay a non-cumulative coupon based on the 90-day bank bill rate plus a margin, to be determined in a bookbuild.So, why is a small regional bank leading the way into the wholesale market, rather than one of the majors?Perhaps because BEN has a pressing need for a tier two capital raising and this issue size is too large for the retail market (with one exception, BEN's existing retail issues are half this size or less) and too small to take to the international bond markets? Of course, conspiracy theorists might suspect agreement has been reached to test the market with a small issue first.And 'test' is the operative word here.The first test for institutional investors is how to price non-viability risk. BEN, no doubt, is hoping that this issue was addressed by the three Basel III-compliant subordinated debt issues in the retail market last year from Suncorp-Metway, Westpac and AMP Bank. Pricing comparisons with Suncorp-Metway and AMP Bank's issues, at margins of 285 basis points and 265 bps, respectively, suggest the rumoured margin of 285 to 300 bps for BEN's issue is reasonable. (Suncorp-Metway and AMP Bank are both rated A+ by Standard and Poor's, compared with BEN's lower rating of A-, while Westpac is more highly rated.)But pricing in the retail market is unlikely to cross over into the wholesale market. Indeed, institutional investors in international markets are extracting much greater margins for such issues than retail investors in Australia.And, while it is not being suggested that domestic institutions have avoided retail issues of tier two and additional tier one capital notes, it is hard to quantify the level of participation as issuers have not been forthcoming with details.The second test for institutional investors participating in note issues with a non-viability trigger, or other equity conversion triggers, is that many operate under investment mandates that prohibit the holding of convertible notes or the proceeds from conversion.With this in mind, each of the three Basel III-compliant subordinated debt issues seen last year included a sale facility for the benefit of institutional investors.Presumably the notes to be issued by BEN will incorporate a similar arrangement. But will such a facility work should all investors want to sell, not just a handful of institutions among many retail investors? Moreover, what would happen if everyone wanted to race towards the exit at the same time?This may highlight an unintended consequence of regulators' efforts to boost bank capital.If note-holders