UPDATE 2-Fiat already concerned for 'deteriorating' Chrysler

* Fiat says concerned about Chrysler's deterioration
* Chrysler, creditors, Fiat file objections to Ind. pensioners
* Adviser: Liquidation would yield less than once thought
(Recasts with district court filings, other details, byline)

By Emily Chasan and Caroline Humer

NEW YORK, May 22 (Reuters) - Italian carmaker Fiat SpA
(FIA.MI) said in court papers on Friday that it is "already
concerned" about the "deteriorating value" of Chrysler's assets
and that a U.S. district court should not obstruct its sale
process.

Chrysler, its creditors' committee, and Fiat filed a series
of court documents on Friday, asking the U.S. District Court in
Manhattan to reject a request by a group of Indiana state
pension funds that the district court intervene in the
bankruptcy case and postpone the sale of Chrysler's assets.

"Any material delay in the implementation of the bidding and
sales process that the Bankruptcy Court has carefully but
expeditiously set in motion will destroy Chrysler, put hundreds
of thousands of people out of work, and devastate communities in
both the United States and Canada," Chrysler said in court
documents.

Chrysler has a government deadline of June 15 to close the
transaction to sell itself to a "New Chrysler" owned by the U.S.
and Canadian governments, Chrysler's union and Fiat, according
to court papers. Chrysler's unsecured creditors' committee said
in court papers on Friday that if the sale was not able to go
forward it would mean certain liquidation for the iconic U.S.
automaker.

DETERIORATING VALUE

Fiat, however, said that any delay to the sale process "could
ultimately prove fatal" to Fiat's plan to revive Chrysler. It
said it already has concerns about the value of the assets "New
Chrysler" is expected to acquire from "Old Chrysler" as the
company's plant shutdown is affecting its suppliers and dealer
networks.

Chrysler's financial advisory firm said in separate
bankruptcy court documents on Thursday that, based on updated
financial information, the financial recovery for lenders and
the U.S. government would be worse under a liquidation scenario
than it previously thought.

In the documents, Capstone Advisory Group said the company's
first lien, or most senior lenders, would have recovered 18
percent of their investment at the most and zero at the worst in
two different liquidation scenarios based on its cash balance as
of April 30.

In a previous analysis released after Chrysler's April 30
bankruptcy filing and based on its April 1 cash balance of $1.34
billion, the lenders would have recovered from 9 to 38 percent
of their investment.

The report prepared by Capstone's Robert Manzo said the car
company had $407 million of free cash to use for a potential
liquidation as of April 30.

Under the new scenario, the U.S. Treasury would recover 3 to
5 percent of its investment, compared with 3 to 6 percent in
Capstone's previous analysis.

Chrysler and Fiat said that if the district court decides to
grant the Indiana pension funds' request, the funds should be
required to put up a substantial bond to compensate parties
harmed by that delay. Chrysler asked that the funds put up a $2
billion bond.

According to court papers, the Indiana pension funds hold
about $43 million of Chrysler's total $6.9 billion in senior
debt. The pension funds have said they object to the way
Chrysler is planning to sell itself and distribute funds to more
junior creditors ahead of them. They say that the government
does not have the authority to take these actions and asked that
the sale be delayed so constitutional questions about the
government's involvement can be explored.

The district court is slated to hear the pension funds'
request on Tuesday. Chrysler is scheduled to have its sale
hearing in bankruptcy court on Wednesday.

The bankruptcy case is In re: Chrysler LLC, U.S. Bankruptcy
Court, Southern District of New York, No. 09-50002. The district
court case is in U.S. District Court, Southern District of New
York, No. 09-04743.
(Reporting by Caroline Humer and Emily Chasan; Editing by
Richard Chang and Matthew Lewis)