Westpac will become the first of the four major banks to test the appetite of institutional investors for Basel III compliant subordinated debt with a A$500 million issue. Since the beginning of 2013, bank subordinated debt has been structured with cumulative coupons that can only be paid if the bank will remain solvent after the coupon is paid. Critically, the debt will convert into ordinary equity, should APRA determine that the bank has reached the point of non-viability.Institutional investors have struggled to come to terms with these features of the new style subordinated debt. In many cases the investment mandates under which their fixed income portfolios are operated simply do not allow equity convertible instruments to be held. With any significant investment appetite for subordinated debt in doubt, all issuance last year was restricted to the ASX listed market, in which retail investors dominate.Nevertheless, only Suncorp, Westpac and AMP issued ASX-listed subordinated bonds in 2013. Suncorp sold $770 million of notes, Westpac, $925 million and AMP, $325 million.No bank subordinated bonds have been issued to retail investors so far this year. Indeed, there may not be any at all, if Westpac's proposed wholesale offering is not judged a success.Bendigo and Adelaide Bank (BEN) paved the way for Westpac's issue, with the sale of $300 million of subordinated bonds, priced at a margin of 280 basis points over the 90 day bank bill rate. The issue was upsized from $200 million at launch, with an indicative margin of 285 bps to 300 bps. The success of BEN's issue was attributed to the composition of its lead management team. The lead managers were NAB, Nomura and Goldman Sachs.The involvement of NAB brought broad market credibility to the transaction and access to NAB's solid base of sub-institutional investors. Nomura and Goldman Sachs brought their private bank clients, both Asian and domestic, to the deal. They are not known for being particularly active in the wholesale corporate bond market.For this transaction, Westpac is managing the issue itself, suggesting it is supremely confident that its investor clients will find the issue compelling. Westpac is seeking to sell $500 million of the ten year, non-call five, subordinated bonds.The credit margin being offered is said by market participants to be 210 bps, which is only 9 bps wide of the current trading margin on the subordinated bonds listed on the ASX last year.The minimum investment is $500,000.