Pour the granulated sugar into a medium heavy-bottomed saucepan in an even layer. Heat over medium heat without stirring until the edges begin to melt and turn golden, about 5 minutes.

Gently swirl the pan to melt any unmelted sugar. Continue cooking until the caramel turns deep amber and smells slightly bitter, about 2 more minutes. Pull it off the heat immediately.

Add the butter cubes carefully - the mixture will bubble hard. Whisk until fully melted and combined.

Slowly pour in the warm heavy cream while whisking constantly. Add the salt and stir until smooth. Set aside to cool for 10 minutes.

Place the chopped walnuts in a dry skillet over medium heat. Toast for 3 minutes, stirring constantly, until fragrant and lightly browned. Transfer to a plate and let cool.

Heat the oven to 170 C / 340 F. Grease the baking dish with the tablespoon of butter.

In a large mixing bowl, whisk together the milk, heavy cream, eggs, brown sugar, vanilla extract, cinnamon, and nutmeg until smooth.

Pour three-quarters of the cooled caramel sauce into the custard mixture and whisk to combine. Reserve the remaining caramel for serving.

Add the bread cubes to the bowl and fold gently so every piece is coated in custard. Let soak for 20 minutes, pressing the bread down occasionally.

Transfer the soaked bread mixture to the prepared baking dish. Scatter the toasted walnuts evenly over the top and press them lightly into the surface.

Place the baking dish inside a large roasting pan. Pour hot water into the roasting pan until it reaches halfway up the sides of the baking dish.

Bake for 45-50 minutes until the top is golden brown and the center feels just set when pressed gently. An instant-read thermometer inserted in the center should read 82 C / 180 F.

Remove the baking dish from the water bath and rest on a wire rack for 10 minutes before slicing. Drizzle with reserved caramel sauce and serve warm.