imageMILAN/LONDON: Italian carmaker Fiat SpA has started talks with banks on refinancing an existing 1.95 billion euro ($2.5 billion) loan in a first step towards merging with Chrysler, banking sources said on Friday.

Fiat is in talks to buy the 41.5 percent of Chrysler it does not already own from VEBA, a healthcare trust linked to the US United Auto Workers union.

The loan is a routine refinancing of debt expiring in June 2014, and will include new, more flexible conditions that Fiat needs to enable it to use the funds in connection with its planned purchase of Chrysler, said one of the people.

Another source said he expected the refinancing to be launched to a pool of 14-16 banks at the end of June.

The 1.95 billion euro revolving credit was put in place in October 2011. Citigroup acted as the co-ordinator of that loan.

Ratings agencies require companies to refinance loans 12 months before they mature to keep liquidity reserves high.

A Fiat spokesman said the company did not comment on financing transactions.