NEW YORK (

TheStreet

) -- Shares of

CIT

(CIT) - Get Report

fell in after-hours trading Tuesday following a report the commercial lender was preparing a plan that would hand control of the company to its bondholders.

The stock tanked after hours by 60 cents, or 27.3%, to $1.60 after the

Wall Street Journal

reported CIT was preparing an exchange offer that would eliminate 30% to 40% of its more than $30 billion in debt outstanding.

The plan, the newspaper reports, would offer bondholders new debt secured by CIT assets, as well as nearly all of the equity in a restructured firm. The new debt would mature later than current debt, according to the

Journal

.

The plan sets up a potential showdown between bondholders with debt coming due soon and those whose debt doesn't come due for years. If CIT doesn't get enough bondholder support, the lender plans to execute the restructuring in bankruptcy court, the

Journal

says, citing people familiar with the situation.

Whatever scenario CIT chooses means the shares will lose most or all of their value. CIT declined to comment for the newspaper.

CIT shares swung higher during the regular trading session Tuesday, with the initial spike appearing to have been triggered by a

New York Post

story about a possible merger with

IndyMac Federal Bank

. But

Reuters

disputed that report around midday, stating CIT was in talks for a credit line of up to $10 billion.

CIT

shares closed Tuesday up 31.7% to $2.20, on volume more than three times its three-month daily average.

-- Reported by Joseph Woelfel in New York

.

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