Further evidence emerged last week that the Bank of Queensland is unlikely to redeem its tier-one hybrid, or PEPS notes, as had been expected in December. There was talk in the market that BOQ had appointed Bank of America Merrill Lynch to explore options for the PEPS. Explore options may mean that BOQ is considering a move that will fall somewhere between redeeming the PEPS and leaving them in place as a perpetual note that will pay 200 basis points more than the 180-day bank bill rate, on a fully franked basis.Explore options also means that BOQ is well aware that it would have to pay more than 500 bps over the bank bill rate if was to redeem the PEPS and issue a new Basel III compliant tier-one hybrid note. (This is the credit spread set for the coupon to be paid on the new hybrid to be issued by Bendigo and Adelaide Bank, and the former bank is more highly rated than BOQ.) At the same time, BOQ will want to minimise any damage to its reputation that is likely to ensue from becoming the first bank not to redeem a tier-one hybrid note when expected.One option is to follow the precedent set by Goodman Group recently, when the property group made holders of its PLUS hybrid notes an offer they couldn't refuse.The PLUS hybrid notes were expected to be redeemed in March 2013, but Goodman Group informed investors recently that it proposed to exchange the PLUS notes for PLUS II notes.The PLUS II notes would pay a coupon of 200 bps more than the 190 bps over the 90-day bank bill rate paid on the PLUS notes but would have a final maturity of 31 December 2073 (that is, 51 years hence). Alternatively, investors could keep their PLUS notes, which would continue to pay 190bps over bank bills… in perpetuity.The proposal to exchange the Goodman PLUS notes for PLUS II notes was put to a meeting of investors the week before last, because there was no provision for such an exchange in the PLUS notes documentation. Naturally, investors voted in favour of the exchange, but many must have come away from the meeting with a bad taste in their mouths.So, one option for BOQ is clear. Offer PEPS investors an exchange for a new Basel III compliant tier-one hybrid note - a "PEPS II".PEPS II could pay a coupon of, say, 200 bps higher than PEPS. This would take the coupon to 400 bps over the 180-day bank bill rate, which is less than the 500 bps over that which Bendigo will pay on its new tier one hybrid notes, and then BOQ might just manage to minimise the damage to its reputation.BOQ would have to call a meeting of PEPS investors, but what choice would they have? The first P in PEPS stands for perpetual.(Note: the PEPS will continue to qualify as tier-one capital under the Basel III transitional arrangements.)