Manulife unit to issue C$1 billion in notes

* Issues C$1 bln in notes for Tier 1 capital

* Rate of issue 7.405 pct a year

* RBC Capital, National Bank Financial underwriters

TORONTO, July 6 (Reuters) - Manulife Financial Corp (MFC.TO), Canada's top life insurer, said late on Monday its Manulife Financial Capital Trust II unit would issue C$1 billion ($862 million) of notes for Tier 1 capital, typically used to strengthen balance sheets.

Manulife said in a statement that, from the date of issue to but excluding Dec. 31, 2019, the rate of interest on the so-called MaCS II - Series 1 will be fixed at 7.405 percent per annum.

"An amount equivalent to the net proceeds will be used by Manulife Financial Corporation to acquire liquid assets for possible future retirement of amounts outstanding under MFC's credit facility or for general corporate purposes," the company said.

Manulife is still recovering from exposure to billions of dollars in liabilities incurred by its variable annuity business during the global economic crisis, when unhedged bets turned sour as stock markets tumbled.

"The offering is not expected to initially result in an increase to MLI's reported MCCSR ratio (minimum continuing capital and surplus requirements for life insurance companies)," the company said.

RBC Capital Markets and National Bank Financial are the lead underwriters on the issue.

The transaction is expected to close on July 10, 2009.

Funds under management by Manulife Financial and its subsidiaries were C$405 billion at March 31, 2009.

($1=$1.16 Canadian) (Reporting by Pav Jordan; editing by Rob Wilson)