By Tracy Rucinski

CHICAGO (Reuters) - The bankrupt operating unit of Caesars Entertainment Corp <CZR.O> asked a judge on Tuesday to extend a lawsuit shield for its parent company, which a financial advisor said is critical to making progress toward a settlement with holdout creditors.

Negotiations are advancing thanks to the prospect of more cash for creditors following the $4.4 billion sale of another Caesars affiliate last month and the possibility of financial contributions from Caesars' private equity sponsors, Brendan Hayes, managing director of Millstein & Co said at a hearing.

But negotiations need to take place without the threat of judgments on bondholder litigation currently pending in New York and Delaware against the non-bankrupt Caesars parent, Hayes said.

Caesars is owned by Apollo Global Management LLC <APO.N> and TPG Capital Management LP [TPG.UL], which formed the casino holding company through their 2008 buyout of Harrah's.

Parties in the long and litigious $18 billion bankruptcy met in U.S. Bankruptcy Court in Chicago as Caesars Entertainment Operating Co Inc (CEOC) requested a third halt to $11.4 billion in lawsuits by noteholders against its parent over bond guarantees. A current injunction expires on Aug. 29.

The CEOC bankruptcy has also been rocked by creditor allegations that the parent stripped the operating unit of choice hotel and casino assets prior to the unit's Chapter 11 bankruptcy filing in January 2015.

Though Caesars has denied the allegations, it has offered to settle the claims by contributing roughly $4 billion to CEOC's reorganization. But some junior creditors have refused to support the plan because they believe recoveries should be higher.

"We've made progress over the last 60 days or so, but there's still a lot of work to do," said Hayes, who has been advising on CEOC's reorganization efforts.

A successful reorganization still hinges on financial contributions from Caesars, Hayes said, even if recoveries can be improved with input from parties besides the casino group.

In previous litigation injunction requests, CEOC has warned that rulings for the bondholders could also send its parent into bankruptcy, creating a corporate mess of epic proportions.

U.S. Bankruptcy Judge Benjamin Goldgar asked lawyers on Tuesday whether the case wasn't "already one of the great messes of our time."

When Goldgar granted a temporary halt on the bondholder lawsuits in June, he said the chances of awarding another injunction were slim.

Goldgar is expected to rule on the fresh request before Aug. 29.

CEOC's confirmation trial is scheduled for January 2017.

(Reporting by Tracy Rucinski, editing by G Crosse)