Credit Suisse and Deutsche Bank are selling down their exposure to Huntsman International's $600 million 5.5% seven-year bonds, according to three people familiar with the situation.

Huntsman issued the senior unsecured notes to Credit Suisse (CS) and Deutsche Bank (DB) as part of a $1.7 billion settlement of a lawsuit with the banks in favor of parent Huntsman Corp. (HUN) over a failed buyout of the company. The banks are now looking to sell their exposure to junk bond investors, the people said.

James Lee, senior fixed-income analyst at Calvert Asset Management, described Wednesday's deal as a "refinancing" of the $600 million bonds. He said the banks were looking to sell new $600 million 5.5% senior unsecured bonds due 2016, with the final yield to be determined.

The settlement related to the terminated merger agreements with Apollo Management LP-owned Hexion Specialty Chemicals Inc.

Hexion, originally agreed to buy Huntsman in July 2007 for $6.5 billion. But the Huntsman buyout collapsed in June 2008 as the credit markets soured and Apollo asked a Delaware court to rescind the deal, arguing a combined firm would be insolvent. A judge ruled against Apollo and ordered it to try to close the transaction.

Huntsman later sued the banks in Texas, accusing them of failing to fund the deal because they wanted to avoid billions of dollars in loan losses. In December, Huntsman reached a $1 billion settlement with Apollo, which included a $250 million investment in Huntsman by Apollo in the form of a convertible note.

As part of the settlement, Credit Suisse and Deutsche Bank agreed to provide Huntsman with $1.73 billion in cash and financing, according to Standard & Poor's LCD Unit. This included the $600 million bond, as well as a $650 million in cash and $12 million in reimbursements for litigation costs. There was also a $500 million term loan. The banks launched a selldown of this loan earlier this week, according to LCD.

Huntsman used the proceeds of the settlement to pay down in July and August 2009, all the $296 million principal outstanding on the company's 11.625% senior secured notes due 2010, and all $198 million outstanding on 11.5% senior notes due 2012. The remaining portion of the settlement bolstered liquidity at the company, according to Standard & Poor's.

Although selling the bonds and loan can be construed as self-serving on the part of the banks, Calvert Asset Management's Lee said the debt is likely to find favor with investors.

"The settlement is the biggest positive Huntsman has. Operationally the company isn't doing very well, but it has plenty of cash," Lee said.

"Banks and fixed income investors love it when the company doesn't need the money," he added.

Although official yield guidance on the bonds hasn't been released, investors said that a yield in the region of 9.5% wouldn't be a surprise.

The bonds are expected to price later Tuesday following a call with investors, the people said.

-By Kate Haywood, Dow Jones Newswires; 212-416-2218; kate.haywood@dowjones.com

(Peter Lattman contributed to this article.)