Kansas City, Mo ? Fitch downgraded Aquila Inc.’s credit rating to junk status Friday after the Kansas City, Mo.-based energy provider disclosed that it could default on its debt.

Fitch has downgraded Aquila’s senior unsecured rating to “BB”‘ from “BBB-” and the short-term rating to “B” from “F3.”

The moves increase the interest rates on two series of bonds that total $750 million, but does not bring any payments due, said Aquila spokesman Al Butkus.

Moody’s Investor Services downgraded Aquila’s rating to junk in September, while Standard & Poors stopped one step short.

In filings with the Securities and Exchange Commission Thursday, Aquila said failure to renegotiate a bank financing agreement or losing a pending lawsuit involving surety bonds on natural gas contracts would mean it could not meet its obligations. Aquila’s debt totals $3.6 billion, Butkus said.

In a news release on Friday, however, Aquila said that with liquidity of $897 million, it was ready to respond to the potential effects resulting from the latest downgrade.

“We’re naturally disappointed by Fitch’s decision,” Richard C. Green, Jr., Aquila’s chairman, president and chief executive officer said, “but we’ve already been operating more than two months with a prior non-investment grade rating. We’re well prepared to meet any additional cash requirements that may result from this latest credit action.”

The company, which exited the volatile wholesale energy business in September, has sold about $796.6 million in assets this year in an effort to improve its balance sheet and credit ratings. Another sale for $180 million is pending. Aquila also has laid off 1,600 workers and plans another 200 job cuts before the end of the year.

Aquila’s stock closed down 6 cents to $2.10 Friday on the New York Stock Exchange.

Aquila announced Wednesday that it lost $331.6 million in the quarter ending Sept. 30, raising its net loss to $1.1 billion for the first nine months of the year.

Aquila management also said it expected significant charges in the fourth quarter, including for additional severance costs and renegotiating energy contracts.