The only interesting news for domestic bond investors last week was a report, in the Australian Financial Review, that Westpac is set to launch a Basel III-compliant, tier two capital issue which will be subordinated debt. According to the AFR, Westpac will advise the ASX tomorrow that it is seeking to raise at least A$750 million through the issue of a 10 year, non-call subordinated debt issue.The bonds, or more likely floating rate notes, will pay a coupon with a spread of between 200 and 220 basis points over the appropriate benchmark interest rate.The AFR suggested that the Westpac FRN will be the first issue of Basel III-compliant subordinated debt but also acknowledges the existence of the Suncorp notes issued in May. The Suncorp notes have deferrable but cumulative coupons, to meet Basel III requirements, and also include a non-viability trigger that will result in the notes converting to equity if activated.Deferrable coupons and equity conversions are features that will prevent many institutional investors from taking up Basel III-compliant subordinated debt. Suncorp took an innovative approach to minimising the impact of an equity conversion; it allowed institutional investors to opt upfront for shares allocated upon conversion to be assigned to a trustee for sale on-market.A Basel III acceptable alternative to an equity conversion is to simply write the subordinated debt off when the issuer reaches the point of non-viability. This may keep institutional investors who can't buy convertible debt on-side but it is understood it creates tax problems for the issuer if the non-viability event is survived.It will be interesting to see the approach Westpac takes with what will be the second Basel III-compliant subordinated debt issue.As for the suggested pricing of the Westpac issue, Suncorp is rated by Standard & Poor's one notch below Westpac, at A+. Suncorp priced its notes at 285 bps over bank bills and the notes have since traded into 266 bps over. This suggests that anything less than 220 bps is ambitious, but the lack of high yielding retail bond issues this year may make it achievable.