DETROIT -

Bankrupt Detroit has reached a new deal with two banks to settle millions of dollars in debt tied to an interest rate swap deal.

Emergency manager Kevyn Orr says an agreement was reached Tuesday to terminate the swaps deal for $165 million with UBS and Bank of America. Before the new deal, Orr had said the payoff amount was $220 million.

It still has to be approved by bankruptcy Judge Steven Rhodes, who ordered the city to seek a better deal with the banks as part of restructuring and turnaround efforts.

Detroit pledged casino tax revenue in 2009 as collateral to avoid defaulting on past pension debt payments. The swaps allowed Detroit to get fixed interest rates on pension bonds with UBS and Bank of America.

Orr also says the city also has agreed to lower a financing loan to pay off the banks.

The termination agreement and the revised post-petition financing loan must be approved by Rhodes at a hearing scheduled for Jan. 3, 2014.

“This is an important development for the City and its residents because it means we can start moving forward on implementing needed investments in public safety and services,” said Orr in a news release. “This agreement represents a significant reduction from the original deal struck with the banks. The banks and the City, through mediation, and with the mediator’s recommendation, have accepted the reduction in terms.”

SPECIAL SECTION: Detroit bankruptcy

Download: Detroit Bankruptcy filing December 2013

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