Bendigo and Adelaide Bank will pay a dividend rate of between 500 and 550 basis points over the 180-day bank bill swap rate to investors in a new issue of convertible preference shares.The bank launched the CPS offer yesterday and is aiming to raise A$125 million. The bank will use A$89 million of the capital raised to redeem an issue of reset preference shares.The preference shares are fully paid, non-cumulative, perpetual and convertible. The will qualify as tier-one capital under the current prudential framework and will qualify as additional tier-one under the Basel III rules that apply from January next year.Compared with the margin Bendigo and Adelaide is likely to pay, Commonwealth Bank is paying a much bigger margin, of 380 basis points, on its recently issued PERLS VI, and IAG is paying a margin of 400 basis points on its CPS, while Westpac is paying 325 basis points on the preference shares its issued this year (WBCPC).Dividends on the Bendigo and Adelaide CPS are discretionary, but if the bank misses a payment date it will not be allowed to pay a dividend or make any distribution on ordinary shares.There is an optional exchange date, in December 2017, when Bendigo and Adelaide can redeem the shares at their face value or convert them into ordinary shares.Requirements for redemption are that the CPS be replaced with tier-one capital of the same or better quality, or that the Australian Prudential Regulation Authority must be satisfied that the bank's capital position will remain adequate after it redeems the shares.There is a mandatory conversion date, in December 2019, when the CPS will be converted into ordinary shares. Unless all conversion conditions (which relate to the share price prior to conversion) are met, conversion will be deferred.The issue also includes a capital trigger event. If the bank's common equity tier-one ratio falls to 5.125 per cent, some or all of the CPS would convert into ordinary shares.Macquarie Group is the arranger and joint lead manager of the issue. Evans & Partners, JP Morgan and Morgan Stanley are the other joint lead managers.