This is the option to get from the counterparty shares of its own equity, that is exercisable if the equity value (expressed share price) is higher than a fixed level (the exercise price) at a future date. In the event of counterparty´s default the option will not be exercised. The option is only exercised in cases when the counterparty is performing because only in this case the value of the equity can be high enough to exercise the option. 

Also, in the case considered here, settlement will be done delivering the net shares and the shares are already authorized and reserved specifically to settle the warrant. 

Other jurisdictions, such as Canada, exclude these issuer warrant transactions from counterparty credit risk requirements on the basis that the future exposure to a specific counterparty is highly inversely correlated with the counterparty's probability of default. This is the case for equity warrants, where the EAD is zero due to this right way risk.