NEW YORK (CNN/Money) - Ames Department Stores, once one of the leading discount chains in the Northeast, said Wednesday it will close its remaining 327 stores and liquidate its assets in order to avoid defaulting on its loan covenants.

The 44-year-old Rocky Hill, Conn.-based retailer said it has 21,500 employees working in the stores, although company officials could not be reached to say how many are full-time or part-time.

The company filed for bankruptcy court protection Aug. 20, 2001, when it had 452 stores. It has closed more than a quarter of those since, and now operates in 14 states from Maine to Virginia.

The company had announced a series of financing deals since the filing, most recently a $25 million debtor in possession package from GE Capital in June. But the company said Wednesday it has determined that "asset values can best be maximized for the benefit of all creditors by terminating operating losses and winding down the business."

Ames reported a loss of $49.1 million, excluding a gain from change of accounting practices, for the period ending May 4, the most recent period for which it has reported results. That's a wider loss than the $27.7 million deficit on the same basis a year earlier. Net sales fell to $567.9 million from $793.7 million a year earlier.

"This was a wrenching decision, but the right course to take," Chairman and CEO Joseph R. Ettore said. "Continued softness in sales, combined with tightening [credit] terms and slower shipments from our suppliers, have reduced our funds availability below critical levels."

Stores are expected to remain open about 10 weeks while a liquidator conducts a going out of business sale.

Regional discount department store chains have been particularly hard hit by the growth of national chains such as Wal-Mart Stores, Target Corp. and Kohl's Corp. Norwalk, Conn.-based Caldor Corp. closed in 1999, and Braintree, Mass.-based Bradlees closed last year.