"We appreciate the banks' willingness to work with us to reach a solution that we think balances our goal to provide realistic recoveries to creditors while freeing up critical funds that we can invest to improve the quality of life in Detroit," Orr said in a statement Monday.
The proposed settlement is half of what the city had proposed to pay the banks as recently as January. But U.S. Bankruptcy Judge Steven Rhodes rejected the $165 million settlement as too costly, saying the swaps contracts could be challenged in court as illegal, allowing the city to pay nothing at all.
Under the original terms of the swaps, the city would have been forced to pay $286 million, so Orr is portraying the latest agreement as a savings to Detroit's taxpayers of approximately $201 million.
(Read more: Detroit bankruptcy judge sets next steps)
The city entered into the agreements in 2005 and 2006 in hopes of reducing its pension liabilities and locking in a fixed interest rate. The bets backfired when interest rates fell. Then in 2009 when Detroit's credit rating was reduced to junk, the city agreed to back the bonds with revenue from its three casinos—satisfying the banks, but denying itself a key source of funds. Many say the swaps were major culprits in Detroit's historic bankruptcy filing last year.