Hedge fund Paulson & Co. has more time to increase the payout on a group of U.S. luxury resort hotels it owns after bankruptcy court gave it an extension on Wednesday.

Paulson, which regularly invests in distressed and bankrupt companies, acquired the equity in the hotels from Morgan Stanley Real Estate in a foreclosure auction in January.

It put the five U.S. luxury resort hotels, including the Doral Golf Resort & Spa in Miami, into bankruptcy court within a couple of weeks, saying that it wanted to reorganize the upscale properties.

Saul Burian, managing director at Houlihan Lokey and financial adviser to MSR Resort, confirmed that the judge ruled in favor of the extension.

More than four months later, Paulson is still working on a way to get the hotels out of bankruptcy. It plans to sell one, the Doral; restructure the Hilton hotel management agreement for three others; and rework member club agreements.

If it can do that, and boost the value of the hotels above and beyond the level of its debt, it will be able to have its equity repaid.

The company has had enough time to make more progress than it has on a plan, some of its biggest creditors argued this week in an extended court hearing on the issue.

Instead, they said, the company should accept a $1.5 billion cash and debt offer for the hotels from the Government of Singapore Investment Corp, one of the resort group's lenders.

Singapore and other creditors have argued that the Singapore offer should be accepted because it will pay off most of the creditors.

But Singapore's bid may have actually helped the company to believe that it could receive an even higher offer down the road, U.S. Bankruptcy court Judge Sean Lane suggested during the hearing.

GIC is a sovereign wealth fund that manages Singapore's foreign reserves and is a large real estate investor in the United States.

The court's ruling gives Paulson another 120 days, or until September 29, 2011, to come up with a restructuring plan for the company. By restructuring its debt and increasing the value of the group to pay off equity -- which is only paid after all other creditors -- Paulson could effectively control the bankruptcy process.

Paulson, with $37 billion in assets in his investing empire, rose to hedge fund fame and made a fortune on an early bet that the mortgage market would collapse. He is now an investor in that sector as well as other distressed properties, like Lehman Brothers Holdings Inc.

In addition to the Doral, the hotels include the Arizona Biltmore, La Quinta Resort & Club, Grand Wailea Resorts Hotel & Spa in Hawaii and the Claremont Resort & Spa in Berkeley, California.

Morgan Stanley purchased the five hotels and three others in 2007 for about $4 billion. The hotels filed with $2.2 billion in assets and $1.9 billion in debt.

The case is in Re: MSR Resort Golf Course, U.S. Bankruptcy Court, District of Delaware, No. 11-10372

(Reporting by Caroline Humer; Editing by Gary Hill)