(FORTUNE Magazine) – WITH ITS TROUBLES multiplying like you-know-whats, Playboy Enterprises has turned tough. It has sued Elsinore Corp. of Las Vegas, its former partner in an Atlantic City casino, and filed a petition to force a subsidiary of Elsinore into bankruptcy. The subsidiary, in response, has petitioned to put itself into bankruptcy. At stake is a $37.9-million unsecured debt Elsinore owes Playboy. That amount equals nearly half the total shareholders' equity of Playboy Enterprises. Playboy's suit is partly a defensive action: the company could be vulnerable to a potential stockholder suit questioning management's judgment for accepting an unsecured note. Management didn't have much choice. In 1981 the New Jersey Casino Control Commission ruled that Playboy could no longer own any share in the casino it had set up with Elsinore two years earlier, citing a payoff Playboy founder Hugh Hefner made 20 years before to politicians in New York for a liquor license. Elsinore, 21% of which is owned by the Pritzker family, agreed to pay $58.5 million for Playboy's 45.7% interest in the venture. The package included $7.6 million in cash, paid out the first year, and a note amounting to $45.3 million. The catch: the New Jersey commission ruled that Playboy could have no property interest at all in the casino, effectively proscribing a secured note. Playboy took an unsecured note. In April, Elsinore paid off the first $7.5 million on the note. By that time, though, the former Playboy Casino, renamed the Atlantis, was in trouble. With 11 gambling palaces operating in Atlantic City, making money from a casino had become a more competitive game, and Elsinore had one of the weaker hands. Gamblers don't like the layout -- three small gaming levels rather than one big expanse. Parking is also a problem. The Atlantis doesn't have enough spaces. During the first six months of this year, the casino rang up losses of $17 million on revenues of $71 million. Debts mounted, including $115 million owed to creditors in line ahead of Playboy. Finally, on November 1, the Atlantis missed an $8.9-million payment due its senior mortgage bondholders. Playboy executives feared that the note their company holds would become worthless. By suing the parent, Playboy hopes to get the money it's owed. And ( by pushing Elsinore's sub into bankruptcy, it sought to protect itself in case Atlantis began transferring assets to its parent. Christie Hefner, Playboy's 33-year-old president and the daughter of the founder, explains in legalese: ''The suit was filed because certain claims that Playboy Enterprises Inc. could assert had reached the point where they might be barred by the passage of time.'' Now that the subsidiary has itself filed, the question becomes where Playboy will stand compared with other creditors. Says Hugh Hefner, Playboy's chairman, ''The casino in Atlantic City haunts us still.'' Elsinore's troubles come at a bad time for Playboy. In November the company posted a loss for the fiscal quarter that ended September 30 -- $2 million on revenues of $48 million. It was the third consecutive quarterly loss. While sex is certainly not out of style, the Playboy version has lost some of its appeal. Only about three-fifths as many subscribers ogle the pages of its magazine today as three years ago -- 4.1 million vs. seven million. While moral vigilantes have chased its Playboy Channel off the cable in some towns, many viewers find it tame and lame -- the channel has the highest disconnect rate in the cable industry, 12% last August. Christie Hefner is trying to change that picture. To give a new look to the magazine, which produces practically all Playboy Enterprises' operating income, the company has begun binding it with glue rather than staples. After a fling with higher-quality programming, the Playboy Channel has gone back to soft-core erotica, cut its prices, and hired a new chief executive. Even Playboy Clubs are getting the treatment. One new feature: scantily clad male waiters, called rabbits. While failure to collect from Elsinore wouldn't cripple Playboy, it certainly would crimp the rejuvenation efforts. Playboy stock could also slide further (it traded recently at around $8 a share, down from a high near $14 in February), maybe to where it looks like a bargain to the man who still owns 70% of it -- Hugh Hefner. Hippety-hop down the leveraged buyout trail?