Fiat, banks 'reach funding deal'

Fiat has an option to sell its stake in car unit Fiat Auto to General Motors

MILAN, Italy -- Fiat has struck a deal with its creditor banks to provide new funding for the struggling industrial group, according to an Italian news report.

The agreement would give the banks -- Banci di Roma, IntesaBCI and Sanpaolo IMI -- a stake in Fiat's sportscar business Ferrari, which is set to be floated later this year, the news agency ANSA reported on Monday.

Spokesmen for Fiat and the banks declined to comment on the report.

The agreement follows earlier reports that Fiat had been warned by creditor banks that its debt could be downgraded to junk bond status unless it sells more assets. The 103-year-old company has an option to sell its remaining 80-percent stake in car unit Fiat Auto to General Motors.

MORE STORIES • Fiat to cut 6,000 jobs  • Fiat to float Ferrari to cut debt  • Italy's Fiat to cut 3,000 jobs

Fiat -- which has announced plans to layoff more than 3,000 workers -- has been told that its current plans are insufficient to avoid a downgrade, the Financial Times reported on Monday.

Chairman Paolo Fresco and Paolo Cantarella, the chief executive, met with executives from the three banks on Friday and Saturday, the FT said. The bankers sought pledges that the company would consider selling more assets and possibly raising fresh money.

"There has to be a capital increase, but you can't have one unless the restructuring plan is a lot tougher that what they've announced," a person familiar with the discussions was quoted as saying.

The banks would like Fiat to sell Toro, a mid-sized insurer worth about 3 billion euros ($2.8 billion), and FiatAvi, an aeronautics company, valued at 2 billion euros, the FT said.

"They could be sold relatively easily but Fiat's managers think they are strategic to the whole group and to carmaking. I can't understand it," one banker told the FT.

Fiat is in talks to sell Teksid, a metallurgical products manufacturer, and components group Magnetic Marelli. It is also considering selling its robotics business Comau. Together they could raise about 3 billion euros.

A pledge to sell the businesses and fine-tune the financing of 33 billion euros in bank loans and bonds should avoid a downgrade, bankers told the paper.

Fiat's stock was down about 5 percent to 13 euros in afternoon Milan trading on Monday.