(Recasts with U.S. bankruptcy watchdog concerns)
By Tracy Rucinski
CHICAGO, Oct 19 (Reuters) - A lawyer for the U.S. government's bankruptcy watchdog raised concerns in court on Wednesday over Caesars Entertainment Corp's $5 billion creditor deal to push its main unit out of Chapter 11, even as hold-out creditors appeared closer to backing the agreement.
Caesars Entertainment Operating Co Inc (CEOC) filed for bankruptcy in January 2015 amid allegations by creditors that its parent had looted the unit of its best assets, leaving it with $18 billion of debt.
Las Vegas-based Caesars reached an agreement with creditors last month that includes a $5 billion contribution to CEOC's reorganization plan in exchange for releases from billions of dollars in legal claims.
Even though most of the creditors have agreed to drop their allegations against Caesars, the U.S. bankruptcy code holds that any deal must adhere to the law, Denise Delaurent, an attorney with the U.S. Trustee, said at an Illinois court hearing.
She said her office was reviewing fees and aspects of the deal that released some parties from lawsuits. "From our perspective even if everyone comes to an agreement, it might still violate the law," she said at the hearing.
The U.S. Trustee typically oversees the administration of bankruptcy cases and polices them for conflicts.
Caesars has denied any wrongdoing.
While the judge handling the Caesars bankruptcy once warned the contentious case could turn into "World War Three," Caesars has since made peace with the vast majority of creditors, most of whom have pledged to support its reorganization plan.
Agreements with two remaining groups - Trilogy Capital Management and the National Retirement Fund - are close, CEOC's lawyers said at the hearing on Wednesday.
A trial to confirm the bankruptcy is scheduled for January and U.S. Bankruptcy Judge Benjamin Goldgar said the reorganization would likely win court approval if there were not any objections, which are due later this year.
If the U.S. Trustee disagrees with the confirmation of the bankruptcy, it could appeal to a higher court.
Caesars declined to comment on Wednesday.
(Editing by Alan Crosby and Matthew Lewis)