Competitive local exchange McLeodUSA (MCLD) was down 12.4% in early trading after Merrill Lynch downgraded its mid-term recommendation to neutral from accumulate.

The company said Wednesday it was cutting about 5% of its 11,500-person workforce and said it will take a charge of $6 million to $8 million in the second quarter.

Merrill also cut broadband business communications company

XO Communications

(XOXO)

to neutral from buy.

Merrill Lynch cited recently revised business plans for both companies as a reason for investors to steer clear.

XO was down 6.8%.