Bank of Queensland has become the first bank to opt not to redeem an issue of preference shares on the first optional call date. The bank released at statement to the Australian Securities Exchange yesterday, saying holders of its Perpetual Equity Preference Shares, which have a call date of December 17, have the option of reinvesting in a new issue of convertible preference shares or continuing to hold the PEPS.Following BOQ's decision to renege, PEPS holders will have no option but to roll their holding into a new Basel III compliant CPS issue. While they will not be forced to do this, the alternative is to continue to hold a perpetual security that has no prospect of redemption in the foreseeable future.The Australian Prudential Regulation Authority has confirmed the transitional treatment of the PEPS as additional tier-one capital. The PEPS pay a coupon with a margin of only 200 basis points over the bank bill rate, while the new CPS is offering at least 310 points more than this. In both cases, coupon payments are discretionary and non-cumulative.The new BOQ CPS, like other Basel III compliant additional tier-one capital, provide for optional early conversion into BOQ ordinary equity after six years, and compulsory conversion after eight years, subject to certain conditions (which may never be met) and APRA's approval (which should not be expected).The conversion into equity provides investors with some opportunity to regain their capital, if they wish to do so. However, PEP holders outside Australia and New Zealand are excluded from the offer to reinvest in the CPS and face the prospect of the PEPS being delisted from the ASX, if the remaining volume outstanding falls below a certain threshold.The new CPS will pay a fully franked coupon based on the 180-day bank bill rate plus an indicated margin of 510 to 530 basis points. The actual margin will be determined in a bookbuild on November 16, and the market will be advised of this on the following Monday.The margin being offered allows little pick-up on the recent Bendigo and Adelaide Bank CPS issue, which pays 500 points over the bank bill rate, and Bendigo and Adelaide's CPS offers investors less of a credit risk than BOQ's. While BOQ's CPS offer is open to all comers, it is not clear how much new investor interest the bank expects to receive. The size of the offer at the moment is A$200 million, which matches the amount of PEPS outstanding.If there is some unsatisfied demand from the Bendigo and Adelaide CPS issue or the Suncorp CPS2 issue, which commenced trading on the ASX yesterday (on a deferred settlement basis), BOQ may elicit some new investor interest, but potential new investors will need to consider whether the parsimonious additional margin on offer compensates for the increased credit risk of BOQ.If there is little new investor demand for the CPS, the chances of PEPS holders "reinvesting" in the CPS then being able to sell the CPS on market, at face value, after