Because of the Debt Overhang. Google it.
Basically, even if they can get financing for the deal, and it is a good deal, the equity holders might end up with less than they were before because the added benefit is going to the debtholders.
For example:
Suppose there is 40m of debt. And currently there is a 50% chance they will have 60 and a 50% chance they will have 10 (and go bankrupt).
Now, they have opportunity to invest 30 in a sure deal that will make 40. So they should really borrow 30 and to that deal.
But they won’t do it.
Because what would the new debtholders ask for? They will ask for high enough interest that it will be worth it to take the risk, since even though the deal is a sure thing, in the bad state of the world, the other senior debtholders are going to take most of the money and leave them with only 10–a loss of 20. So we will need to promise to double that loss in the good state and give them 50!
Now, what do the equity holders get? Currently, in the good state of the world, they will have 20 left after paying the debt and in the bad state will have nothing, so their chances are worth 10.
But if they do the deal, then in the good state of the world, they will have 60+40 and need to pay back 40+50, so will have 10 left. But in the bad state of the world, their chances are only worth 5!
The intuition is that the added value is going to the debtholders–not to the equity. And who do you think makes decisions? The equity.