Westpac Banking Corporation is about to undertake its first Basel III compliant, Tier 2 subordinated debt issue in New Zealand. The Bank is looking to raise up to NZ$250 million but says it will accept unlimited oversubscriptions.The offer is not open to Australian investors, but has some features which have either not been offered in Australia before or are no longer available.The notes will have a ten-year, non-call five, maturity structure and will pay coupons subject to meeting the solvency test. Any coupons deferred should the solvency test be failed will accumulate with compounding interest payable. The notes are convertible into Westpac shares at the point of non-viability but should conversion not be possible, the notes will be written-off. Westpac seems to go to unusual lengths in the product disclosure statement to make it clear that should conversion take place, it is more than likely that note holders will suffer a capital loss.Westpac's candidness may be due to the fact that the offer is open to retail investors. There has been no retail issuance of bank subordinated debt in Australia since 2013. And the issuance that is undertaken in Australia (retail and wholesale) invariably comes with a floating rate coupon. The notes being offered in New Zealand will pay a fixed rate coupon based on the five year swap rate. Australian investors may be ambivalent about receiving a fixed rate coupon or may even prefer floating rates, but fixed rate is the norm in New Zealand.The indicative margin to be paid over the swap rate is 260 basis points to 280 basis points. Whether this is fair or not is difficult to say, as there are no obvious benchmarks for comparison.The last T2 issue that we are aware of in New Zealand came from ASB Bank in April 2014, and that was priced at 205 bps over. Credit spreads have widened since then and it has not been possible to identify reliable secondary market levels.Recent five-year senior debt issuance has been priced around 130 bps over. Thus the notes are offering a 130 bps to 150 bps premium over senior debt.This seems reasonable relative to Australian comparisons.The bookbuild to set the margin will take place on August 4 and the offer will open on August 5. The offer will close on August 26 and the notes will trade on the NZDX under the ticker: WBC010.