In a small bowl, combine 1/2 cup water with the sherry, orange juice, tomato paste, vinegar, and honey.
In another small bowl, mix 3 Tbs. of the olive oil and the thyme. Position a rack 6 inches from the broiler and heat the broiler on high. Arrange the baguette slices on a baking sheet. Brush both sides with some of the thyme oil and sprinkle lightly with salt. Toast under the broiler, flipping once, until golden brown on one side and lightly toasted on the other, about 5 minutes total.
Meanwhile, in a medium (6-quart) Dutch oven, heat the remaining 2 Tbs. olive oil and 1 Tbs. of the butter over medium heat. Add the bell peppers, raise the heat to medium high, and cook, stirring occasionally, until browned in spots and somewhat softened, 6 to 8 minutes. Add the garlic and chile and cook briefly, stirring, until fragrant and well combined. Add the sherry mixture, stir, and bring to a simmer. Add the mussels, cover the pot, and cook until the mussels have opened, 3 to 4 minutes. Remove from the heat, toss in all but a few sprigs of the watercress, and stir gently to partially wilt it.
Using a slotted spoon, transfer the mussels and watercress to 4 wide, shallow serving bowls. Add the remaining 1 Tbs. butter to the broth and stir until melted. Ladle the broth over the mussels. Garnish with the remaining watercress sprigs and serve with the toasts on the side.